Correlation Between Petroleo Brasileiro and China Enterprise

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

Diversification Opportunities for Petroleo Brasileiro and China Enterprise

-0.34

Correlation Coefficient

Petroleo Brasileiro  China Enterprise

Very good diversification

The 3 months correlation between Petroleo and China is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and China Enterprise Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Enterprise 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 Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Enterprise has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and China Enterprise go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and China Enterprise

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the China Enterprise. But the stock apears to be less risky and, when comparing its historical volatility, Petroleo Brasileiro Petrobras is 1.65 times less risky than China Enterprise. The stock trades about -0.22 of its potential returns per unit of risk. The China Enterprise Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  295.00  in China Enterprise Co on September 25, 2024 and sell it today you would lose (7.00) from holding China Enterprise Co or give up 2.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  China Enterprise Co

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 latest conflicting performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

China Enterprise

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Enterprise Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Enterprise may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Petroleo Brasileiro and China Enterprise

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

The idea behind Petroleo Brasileiro Petrobras and China Enterprise Co 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.