Correlation Between Petrleo Brasileiro and Shell PLC

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

Diversification Opportunities for Petrleo Brasileiro and Shell PLC

0.5

Correlation Coefficient

Petrleo Brasileiro  Shell PLC

Very weak diversification

The 3 months correlation between Petrleo and Shell is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Shell PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC 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 Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC ADR has no effect on the direction of Petrleo Brasileiro i.e., Petrleo Brasileiro and Shell PLC go up and down completely randomly.

Pair Corralation between Petrleo Brasileiro and Shell PLC

Assuming the 90 days horizon Petrleo Brasileiro is expected to generate 1.56 times less return on investment than Shell PLC. In addition to that, Petrleo Brasileiro is 1.44 times more volatile than Shell PLC ADR. It trades about 0.12 of its total potential returns per unit of risk. Shell PLC ADR is currently generating about 0.27 per unit of volatility. If you would invest  6,112  in Shell PLC ADR on December 30, 2024 and sell it today you would earn a total of  1,161  from holding Shell PLC ADR or generate 19.0% 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.  Shell PLC ADR

Petrleo Brasileiro

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petrleo Brasileiro SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Petrleo Brasileiro may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Shell PLC ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC ADR are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating technical and fundamental indicators, Shell PLC disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petrleo Brasileiro and Shell PLC

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

The idea behind Petrleo Brasileiro SA and Shell PLC 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.