Correlation Between Petrleo Brasileiro and Equinor ASA

Can any of the company-specific risk be diversified away by investing in both Petrleo Brasileiro and Equinor ASA 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 Equinor ASA 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 Equinor ASA ADR, you can compare the effects of market volatilities on Petrleo Brasileiro and Equinor ASA 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 Equinor ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petrleo Brasileiro and Equinor ASA.

Diversification Opportunities for Petrleo Brasileiro and Equinor ASA

0.51

Correlation Coefficient

Petrleo Brasileiro  Equinor ASA

Very weak diversification

The 3 months correlation between Petrleo and Equinor is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Equinor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA ADR 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 Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA ADR has no effect on the direction of Petrleo Brasileiro i.e., Petrleo Brasileiro and Equinor ASA go up and down completely randomly.

Pair Corralation between Petrleo Brasileiro and Equinor ASA

Assuming the 90 days horizon Petrleo Brasileiro SA is expected to generate 1.12 times more return on investment than Equinor ASA. However, Petrleo Brasileiro is 1.12 times more volatile than Equinor ASA ADR. It trades about 0.06 of its potential returns per unit of risk. Equinor ASA ADR 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	Weak
Accuracy	100.0%
Values	Daily Returns

Petrleo Brasileiro SA  vs.  Equinor ASA ADR

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.

Equinor ASA ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Equinor ASA ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Equinor ASA is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Petrleo Brasileiro and Equinor ASA

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

The idea behind Petrleo Brasileiro SA and Equinor ASA ADR 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.