Correlation Between Petrleo Brasileiro and Cenovus Energy

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

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

Diversification Opportunities for Petrleo Brasileiro and Cenovus Energy

0.6

Correlation Coefficient

Petrleo Brasileiro  Cenovus Energy

Poor diversification

The 3 months correlation between Petrleo and Cenovus is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Cenovus Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cenovus Energy and Petrleo Brasileiro 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 Petrleo Brasileiro SA are associated (or correlated) with Cenovus Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cenovus Energy has no effect on the direction of Petrleo Brasileiro i.e., Petrleo Brasileiro and Cenovus Energy go up and down completely randomly.

Pair Corralation between Petrleo Brasileiro and Cenovus Energy

Assuming the 90 days horizon Petrleo Brasileiro SA is expected to generate 1.02 times more return on investment than Cenovus Energy. However, Petrleo Brasileiro is 1.02 times more volatile than Cenovus Energy. It trades about 0.06 of its potential returns per unit of risk. Cenovus Energy is currently generating about -0.01 per unit of risk. 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	Significant
Accuracy	100.0%
Values	Daily Returns

Petrleo Brasileiro SA  vs.  Cenovus Energy

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.

Cenovus Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cenovus Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Petrleo Brasileiro and Cenovus Energy

The main advantage of trading using opposite Petrleo Brasileiro and Cenovus Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Petrleo Brasileiro position performs unexpectedly, Cenovus Energy 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 Cenovus Energy will offset losses from the drop in Cenovus Energy's long position.

The idea behind Petrleo Brasileiro SA and Cenovus Energy 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.