Correlation Between Petróleo Brasileiro and TotalEnergies

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

Diversification Opportunities for Petróleo Brasileiro and TotalEnergies

0.59

Correlation Coefficient

Petróleo Brasileiro  TotalEnergies

Very weak diversification

The 3 months correlation between Petróleo and TotalEnergies is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and TotalEnergies SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TotalEnergies SE 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 TotalEnergies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TotalEnergies SE ADR has no effect on the direction of Petróleo Brasileiro i.e., Petróleo Brasileiro and TotalEnergies go up and down completely randomly.

Pair Corralation between Petróleo Brasileiro and TotalEnergies

Assuming the 90 days horizon Petróleo Brasileiro is expected to generate 3.42 times less return on investment than TotalEnergies. In addition to that, Petróleo Brasileiro is 1.54 times more volatile than TotalEnergies SE ADR. It trades about 0.02 of its total potential returns per unit of risk. TotalEnergies SE ADR is currently generating about 0.1 per unit of volatility. If you would invest  5,711  in TotalEnergies SE ADR on November 28, 2024 and sell it today you would earn a total of  356.00  from holding TotalEnergies SE ADR or generate 6.23% 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.  TotalEnergies SE 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.

TotalEnergies SE ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TotalEnergies SE ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, TotalEnergies may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Petróleo Brasileiro and TotalEnergies

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

The idea behind Petrleo Brasileiro SA and TotalEnergies SE 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.