Correlation Between Petroleo Brasileiro and China Bills

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

Diversification Opportunities for Petroleo Brasileiro and China Bills

0.31

Correlation Coefficient

Petroleo Brasileiro  China Bills

Weak diversification

The 3 months correlation between Petroleo and China is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and China Bills Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Bills Finance 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 China Bills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Bills Finance has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and China Bills go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and China Bills

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the China Bills. In addition to that, Petroleo Brasileiro is 4.48 times more volatile than China Bills Finance. It trades about -0.06 of its total potential returns per unit of risk. China Bills Finance is currently generating about 0.15 per unit of volatility. If you would invest  1,505  in China Bills Finance on September 18, 2024 and sell it today you would earn a total of  20.00  from holding China Bills Finance or generate 1.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  China Bills Finance

Petroleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petroleo Brasileiro Petrobras has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

China Bills Finance

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Bills Finance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, China Bills is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Petroleo Brasileiro and China Bills

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

The idea behind Petroleo Brasileiro Petrobras and China Bills Finance 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.