Correlation Between National Fuel and Petrleo Brasileiro

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

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

Diversification Opportunities for National Fuel and Petrleo Brasileiro

0.27

Correlation Coefficient

National Fuel  Petrleo Brasileiro

Modest diversification

The 3 months correlation between National and Petrleo is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding National Fuel Gas and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrleo Brasileiro and National Fuel 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 National Fuel Gas 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 National Fuel i.e., National Fuel and Petrleo Brasileiro go up and down completely randomly.

Pair Corralation between National Fuel and Petrleo Brasileiro

Considering the 90-day investment horizon National Fuel is expected to generate 3.44 times less return on investment than Petrleo Brasileiro. But when comparing it to its historical volatility, National Fuel Gas is 1.54 times less risky than Petrleo Brasileiro. It trades about 0.03 of its potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  739.00  in Petrleo Brasileiro SA on October 11, 2024 and sell it today you would earn a total of  468.00  from holding Petrleo Brasileiro SA or generate 63.33% return on investment over 90 days.

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

National Fuel Gas  vs.  Petrleo Brasileiro SA

National Fuel Gas

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in National Fuel Gas are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, National Fuel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Petrleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrleo Brasileiro SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with National Fuel and Petrleo Brasileiro

The main advantage of trading using opposite National Fuel and Petrleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Fuel 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 National Fuel Gas 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..