Correlation Between Ebro Foods and Petroleo Brasileiro

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

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

Diversification Opportunities for Ebro Foods and Petroleo Brasileiro

-0.5

Correlation Coefficient

Ebro Foods  Petroleo Brasileiro

Very good diversification

The 3 months correlation between Ebro and Petroleo is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Ebro Foods and Petroleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro and Ebro Foods 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 Ebro Foods 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 Ebro Foods i.e., Ebro Foods and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between Ebro Foods and Petroleo Brasileiro

Assuming the 90 days trading horizon Ebro Foods is expected to under-perform the Petroleo Brasileiro. But the stock apears to be less risky and, when comparing its historical volatility, Ebro Foods is 29.8 times less risky than Petroleo Brasileiro. The stock trades about -0.05 of its potential returns per unit of risk. The Petroleo Brasileiro SA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  356.00  in Petroleo Brasileiro SA on October 24, 2024 and sell it today you would earn a total of  253.00  from holding Petroleo Brasileiro SA or generate 71.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ebro Foods  vs.  Petroleo Brasileiro SA

Ebro Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ebro Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Ebro Foods is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Petroleo Brasileiro

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, Petroleo Brasileiro displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ebro Foods and Petroleo Brasileiro

The main advantage of trading using opposite Ebro Foods and Petroleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ebro Foods 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 Ebro Foods and Petroleo 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..