Correlation Between Imperial Oil and Petrleo Brasileiro

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

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

Diversification Opportunities for Imperial Oil and Petrleo Brasileiro

0.7

Correlation Coefficient

Imperial Oil  Petrleo Brasileiro

Poor diversification

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

Pair Corralation between Imperial Oil and Petrleo Brasileiro

Considering the 90-day investment horizon Imperial Oil is expected to generate 1.23 times more return on investment than Petrleo Brasileiro. However, Imperial Oil is 1.23 times more volatile than Petrleo Brasileiro SA. It trades about 0.14 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  6,066  in Imperial Oil on December 30, 2024 and sell it today you would earn a total of  1,018  from holding Imperial Oil or generate 16.78% return on investment over 90 days.

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

Imperial Oil  vs.  Petrleo Brasileiro SA

Imperial Oil

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Oil are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, Imperial Oil displayed 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 Imperial Oil and Petrleo Brasileiro

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

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.