Correlation Between Petroleo Brasileiro and Xiangtan Electrochemical

Can any of the company-specific risk be diversified away by investing in both Petroleo Brasileiro and Xiangtan Electrochemical 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 Petroleo Brasileiro and Xiangtan Electrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Petroleo Brasileiro Petrobras and Xiangtan Electrochemical Scientific, you can compare the effects of market volatilities on Petroleo Brasileiro and Xiangtan Electrochemical 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 Petroleo Brasileiro with a short position of Xiangtan Electrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petroleo Brasileiro and Xiangtan Electrochemical.

Diversification Opportunities for Petroleo Brasileiro and Xiangtan Electrochemical

-0.25

Correlation Coefficient

Petroleo Brasileiro  Xiangtan Electrochemical

Very good diversification

The 3 months correlation between Petroleo and Xiangtan is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Xiangtan Electrochemical Scien in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiangtan Electrochemical and Petroleo 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 Petroleo Brasileiro Petrobras are associated (or correlated) with Xiangtan Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiangtan Electrochemical has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Xiangtan Electrochemical go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Xiangtan Electrochemical

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 0.66 times more return on investment than Xiangtan Electrochemical. However, Petroleo Brasileiro Petrobras is 1.51 times less risky than Xiangtan Electrochemical. It trades about 0.03 of its potential returns per unit of risk. Xiangtan Electrochemical Scientific is currently generating about 0.02 per unit of risk. If you would invest  1,172  in Petroleo Brasileiro Petrobras on December 2, 2024 and sell it today you would earn a total of  163.00  from holding Petroleo Brasileiro Petrobras or generate 13.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.41%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Xiangtan Electrochemical Scien

Petroleo Brasileiro

Risk-Adjusted Performance

Weak

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

Xiangtan Electrochemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xiangtan Electrochemical Scientific has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Xiangtan Electrochemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Petroleo Brasileiro and Xiangtan Electrochemical

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

The idea behind Petroleo Brasileiro Petrobras and Xiangtan Electrochemical Scientific 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.