Correlation Between BP PLC and Petrleo Brasileiro

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

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

Diversification Opportunities for BP PLC and Petrleo Brasileiro

0.68

Correlation Coefficient

BP PLC  Petrleo Brasileiro

Poor diversification

The 3 months correlation between BP PLC and Petrleo is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrleo Brasileiro and BP PLC 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 BP PLC ADR are associated (or correlated) with Petrleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrleo Brasileiro has no effect on the direction of BP PLC i.e., BP PLC and Petrleo Brasileiro go up and down completely randomly.

Pair Corralation between BP PLC and Petrleo Brasileiro

Allowing for the 90-day total investment horizon BP PLC ADR is expected to generate 0.99 times more return on investment than Petrleo Brasileiro. However, BP PLC ADR is 1.01 times less risky than Petrleo Brasileiro. It trades about 0.18 of its potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about 0.12 per unit of risk. If you would invest  2,869  in BP PLC ADR on December 30, 2024 and sell it today you would earn a total of  517.00  from holding BP PLC ADR or generate 18.02% return on investment over 90 days.

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

BP PLC ADR  vs.  Petrleo Brasileiro SA

BP PLC ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BP PLC ADR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, BP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Petrleo Brasileiro

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petrleo Brasileiro SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Petrleo Brasileiro may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with BP PLC and Petrleo Brasileiro

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

The idea behind BP PLC ADR and Petrleo Brasileiro SA 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.