Correlation Between Petroleo Brasileiro and Cathay TIP

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

Diversification Opportunities for Petroleo Brasileiro and Cathay TIP

-0.69

Correlation Coefficient

Petroleo Brasileiro  Cathay TIP

Excellent diversification

The 3 months correlation between Petroleo and Cathay is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Cathay TIP TAIEX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay TIP TAIEX 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 Cathay TIP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay TIP TAIEX has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Cathay TIP go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Cathay TIP

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Cathay TIP. In addition to that, Petroleo Brasileiro is 5.57 times more volatile than Cathay TIP TAIEX. It trades about -0.22 of its total potential returns per unit of risk. Cathay TIP TAIEX is currently generating about 0.52 per unit of volatility. If you would invest  2,719  in Cathay TIP TAIEX on December 4, 2024 and sell it today you would earn a total of  108.00  from holding Cathay TIP TAIEX or generate 3.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Cathay TIP TAIEX

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 2 (%) 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.

Cathay TIP TAIEX

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cathay TIP TAIEX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cathay TIP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Petroleo Brasileiro and Cathay TIP

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

The idea behind Petroleo Brasileiro Petrobras and Cathay TIP TAIEX 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.