Correlation Between Petróleo Brasileiro and Shell PLC
Can any of the company-specific risk be diversified away by investing in both Petróleo Brasileiro and Shell PLC at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Petróleo Brasileiro and Shell PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Petrleo Brasileiro SA and Shell PLC ADR, you can compare the effects of market volatilities on Petróleo Brasileiro and Shell PLC and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Petróleo Brasileiro with a short position of Shell PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petróleo Brasileiro and Shell PLC.
Diversification Opportunities for Petróleo Brasileiro and Shell PLC
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Petróleo and Shell is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Shell PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC ADR and Petróleo Brasileiro is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Petrleo Brasileiro SA are associated (or correlated) with Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC ADR has no effect on the direction of Petróleo Brasileiro i.e., Petróleo Brasileiro and Shell PLC go up and down completely randomly.
Pair Corralation between Petróleo Brasileiro and Shell PLC
Assuming the 90 days horizon Petrleo Brasileiro SA is expected to generate 1.65 times more return on investment than Shell PLC. However, Petróleo Brasileiro is 1.65 times more volatile than Shell PLC ADR. It trades about 0.08 of its potential returns per unit of risk. Shell PLC ADR is currently generating about 0.04 per unit of risk. If you would invest 661.00 in Petrleo Brasileiro SA on August 28, 2024 and sell it today you would earn a total of 691.00 from holding Petrleo Brasileiro SA or generate 104.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Petrleo Brasileiro SA vs. Shell PLC ADR
Performance |
| Timeline |
| Petróleo Brasileiro |
| Shell PLC ADR |
Petróleo Brasileiro and Shell PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Petróleo Brasileiro and Shell PLC
The main advantage of trading using opposite Petróleo Brasileiro and Shell PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Petróleo Brasileiro position performs unexpectedly, Shell PLC can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Shell PLC will offset losses from the drop in Shell PLC's long position.| Petróleo Brasileiro vs. Vital Energy | Petróleo Brasileiro vs. Permian Resources | Petróleo Brasileiro vs. Magnolia Oil Gas | Petróleo Brasileiro vs. Ring Energy |
| Shell PLC vs. Vital Energy | Shell PLC vs. Permian Resources | Shell PLC vs. Magnolia Oil Gas | Shell PLC vs. Ring Energy |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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