Correlation Between Petróleo Brasileiro and Imperial Oil

Can any of the company-specific risk be diversified away by investing in both Petróleo Brasileiro and Imperial Oil 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 Petróleo Brasileiro and Imperial Oil 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 Imperial Oil, you can compare the effects of market volatilities on Petróleo Brasileiro and Imperial Oil 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 Petróleo Brasileiro with a short position of Imperial Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petróleo Brasileiro and Imperial Oil.

Diversification Opportunities for Petróleo Brasileiro and Imperial Oil

0.81

Correlation Coefficient

Petróleo Brasileiro  Imperial Oil

Very poor diversification

The 3 months correlation between Petróleo and Imperial is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil and Petróleo 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 Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil has no effect on the direction of Petróleo Brasileiro i.e., Petróleo Brasileiro and Imperial Oil go up and down completely randomly.

Pair Corralation between Petróleo Brasileiro and Imperial Oil

Assuming the 90 days horizon Petrleo Brasileiro SA is expected to generate 0.63 times more return on investment than Imperial Oil. However, Petrleo Brasileiro SA is 1.59 times less risky than Imperial Oil. It trades about 0.16 of its potential returns per unit of risk. Imperial Oil is currently generating about -0.04 per unit of risk. If you would invest  1,258  in Petrleo Brasileiro SA on November 28, 2024 and sell it today you would earn a total of  59.00  from holding Petrleo Brasileiro SA or generate 4.69% return on investment over 90 days.

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

Petrleo Brasileiro SA  vs.  Imperial Oil

Petróleo Brasileiro

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Petrleo Brasileiro SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Petróleo Brasileiro is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Imperial Oil

Risk-Adjusted Performance

Very Weak

Over the last 90 days Imperial Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Petróleo Brasileiro and Imperial Oil

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

The idea behind Petrleo Brasileiro SA and Imperial Oil 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.