Correlation Between Banco Bradesco and Petroleo Brasileiro

Can any of the company-specific risk be diversified away by investing in both Banco Bradesco and Petroleo Brasileiro 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 Banco Bradesco and Petroleo Brasileiro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Banco Bradesco SA and Petroleo Brasileiro Petrobras, you can compare the effects of market volatilities on Banco Bradesco and Petroleo Brasileiro 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 Banco Bradesco with a short position of Petroleo Brasileiro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Bradesco and Petroleo Brasileiro.

Diversification Opportunities for Banco Bradesco and Petroleo Brasileiro

0.7

Correlation Coefficient

Banco Bradesco  Petroleo Brasileiro

Poor diversification

The 3 months correlation between Banco and Petroleo is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Banco Bradesco SA and Petroleo Brasileiro Petrobras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro and Banco Bradesco 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 Banco Bradesco SA are associated (or correlated) with Petroleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petroleo Brasileiro has no effect on the direction of Banco Bradesco i.e., Banco Bradesco and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between Banco Bradesco and Petroleo Brasileiro

Given the investment horizon of 90 days Banco Bradesco SA is expected to generate 1.21 times more return on investment than Petroleo Brasileiro. However, Banco Bradesco is 1.21 times more volatile than Petroleo Brasileiro Petrobras. It trades about 0.11 of its potential returns per unit of risk. Petroleo Brasileiro Petrobras is currently generating about 0.12 per unit of risk. If you would invest  179.00  in Banco Bradesco SA on December 20, 2024 and sell it today you would earn a total of  22.00  from holding Banco Bradesco SA or generate 12.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Banco Bradesco SA  vs.  Petroleo Brasileiro Petrobras

Banco Bradesco SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Bradesco SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental indicators, Banco Bradesco displayed solid returns over the last few months and may actually be approaching a breakup point.

Petroleo Brasileiro

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro Petrobras are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Petroleo Brasileiro may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Banco Bradesco and Petroleo Brasileiro

The main advantage of trading using opposite Banco Bradesco and Petroleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banco Bradesco position performs unexpectedly, Petroleo Brasileiro 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 Petroleo Brasileiro will offset losses from the drop in Petroleo Brasileiro's long position.

The idea behind Banco Bradesco SA and Petroleo Brasileiro Petrobras pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.