Correlation Between Metrovacesa and Petroleo Brasileiro

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

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

Diversification Opportunities for Metrovacesa and Petroleo Brasileiro

0.33

Correlation Coefficient

Metrovacesa  Petroleo Brasileiro

Weak diversification

The 3 months correlation between Metrovacesa and Petroleo is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Metrovacesa SA and Petroleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro and Metrovacesa 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 Metrovacesa SA 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 Metrovacesa i.e., Metrovacesa and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between Metrovacesa and Petroleo Brasileiro

Assuming the 90 days trading horizon Metrovacesa is expected to generate 7.19 times less return on investment than Petroleo Brasileiro. But when comparing it to its historical volatility, Metrovacesa SA is 12.29 times less risky than Petroleo Brasileiro. It trades about 0.12 of its potential returns per unit of risk. Petroleo Brasileiro SA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  613.00  in Petroleo Brasileiro SA on September 13, 2024 and sell it today you would earn a total of  42.00  from holding Petroleo Brasileiro SA or generate 6.85% return on investment over 90 days.

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

Metrovacesa SA  vs.  Petroleo Brasileiro SA

Metrovacesa SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metrovacesa SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Metrovacesa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Petroleo Brasileiro

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro SA are ranked lower than 5 (%) 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 Metrovacesa and Petroleo Brasileiro

The main advantage of trading using opposite Metrovacesa and Petroleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metrovacesa 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 Metrovacesa SA 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.