Correlation Between Petróleo Brasileiro and Shell PLC

Can any of the company-specific risk be diversified away by investing in both Petróleo 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 Petróleo 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 Petróleo 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 Petróleo Brasileiro with a short position of Shell PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petróleo Brasileiro and Shell PLC.

Diversification Opportunities for Petróleo Brasileiro and Shell PLC

0.56

Correlation Coefficient

Petróleo Brasileiro  Shell PLC

Very weak diversification

The 3 months correlation between Petróleo and Shell is 0.56. 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 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 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 Petróleo Brasileiro i.e., Petróleo Brasileiro and Shell PLC go up and down completely randomly.

Pair Corralation between Petróleo Brasileiro and Shell PLC

Assuming the 90 days horizon Petrleo Brasileiro SA is expected to generate 1.14 times more return on investment than Shell PLC. However, Petróleo Brasileiro is 1.14 times more volatile than Shell PLC ADR. It trades about 0.16 of its potential returns per unit of risk. Shell PLC ADR is currently generating about 0.15 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	Weak
Accuracy	100.0%
Values	Daily Returns

Petrleo Brasileiro SA  vs.  Shell PLC ADR

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.

Shell PLC ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Shell PLC is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Petróleo Brasileiro and Shell PLC

The main advantage of trading using opposite Petróleo Brasileiro and Shell PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Petróleo 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.