Correlation Between Freehold Royalties and Petroleo Brasileiro

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

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

Diversification Opportunities for Freehold Royalties and Petroleo Brasileiro

0.55

Correlation Coefficient

Freehold Royalties  Petroleo Brasileiro

Very weak diversification

The 3 months correlation between Freehold and Petroleo is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Freehold Royalties and Petroleo Brasileiro Petrobras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro and Freehold Royalties 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 Freehold Royalties 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 Freehold Royalties i.e., Freehold Royalties and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between Freehold Royalties and Petroleo Brasileiro

Assuming the 90 days horizon Freehold Royalties is expected to under-perform the Petroleo Brasileiro. But the pink sheet apears to be less risky and, when comparing its historical volatility, Freehold Royalties is 1.38 times less risky than Petroleo Brasileiro. The pink sheet trades about 0.0 of its potential returns per unit of risk. The Petroleo Brasileiro Petrobras is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  716.00  in Petroleo Brasileiro Petrobras on October 9, 2024 and sell it today you would earn a total of  597.00  from holding Petroleo Brasileiro Petrobras or generate 83.38% return on investment over 90 days.

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

Freehold Royalties  vs.  Petroleo Brasileiro Petrobras

Freehold Royalties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freehold Royalties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Petroleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petroleo Brasileiro Petrobras has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Petroleo Brasileiro is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Freehold Royalties and Petroleo Brasileiro

The main advantage of trading using opposite Freehold Royalties and Petroleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freehold Royalties 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 Freehold Royalties 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.