Correlation Between EQUINOR ASA and Petrleo Brasileiro

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

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

Diversification Opportunities for EQUINOR ASA and Petrleo Brasileiro

0.7

Correlation Coefficient

EQUINOR ASA  Petrleo Brasileiro

Poor diversification

The 3 months correlation between EQUINOR and Petrleo is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding EQUINOR ASA DRN and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrleo Brasileiro and EQUINOR ASA 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 EQUINOR ASA DRN 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 EQUINOR ASA i.e., EQUINOR ASA and Petrleo Brasileiro go up and down completely randomly.

Pair Corralation between EQUINOR ASA and Petrleo Brasileiro

Assuming the 90 days trading horizon EQUINOR ASA DRN is expected to generate 1.35 times more return on investment than Petrleo Brasileiro. However, EQUINOR ASA is 1.35 times more volatile than Petrleo Brasileiro SA. It trades about 0.1 of its potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about 0.06 per unit of risk. If you would invest  6,986  in EQUINOR ASA DRN on October 10, 2024 and sell it today you would earn a total of  954.00  from holding EQUINOR ASA DRN or generate 13.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

EQUINOR ASA DRN  vs.  Petrleo Brasileiro SA

EQUINOR ASA DRN

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days EQUINOR ASA DRN has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, EQUINOR ASA sustained solid returns over the last few months and may actually be approaching a breakup point.

Petrleo Brasileiro

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Petrleo Brasileiro SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Petrleo Brasileiro may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with EQUINOR ASA and Petrleo Brasileiro

The main advantage of trading using opposite EQUINOR ASA and Petrleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EQUINOR ASA 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 EQUINOR ASA DRN 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.