Correlation Between Petroleo Brasileiro and Allied Industrial

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

Diversification Opportunities for Petroleo Brasileiro and Allied Industrial

-0.07

Correlation Coefficient

Petroleo Brasileiro  Allied Industrial

Good diversification

The 3 months correlation between Petroleo and Allied is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Allied Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Industrial 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 Allied Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Industrial has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Allied Industrial go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Allied Industrial

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 1.1 times more return on investment than Allied Industrial. However, Petroleo Brasileiro is 1.1 times more volatile than Allied Industrial. It trades about 0.07 of its potential returns per unit of risk. Allied Industrial is currently generating about 0.03 per unit of risk. If you would invest  1,314  in Petroleo Brasileiro Petrobras on October 22, 2024 and sell it today you would earn a total of  58.00  from holding Petroleo Brasileiro Petrobras or generate 4.41% return on investment over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  Allied Industrial

Petroleo Brasileiro

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro Petrobras are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Petroleo Brasileiro may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Allied Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allied Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Allied Industrial 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 Allied Industrial

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

The idea behind Petroleo Brasileiro Petrobras and Allied Industrial 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.