Correlation Between Petroleo Brasileiro and Organic Tea

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

Diversification Opportunities for Petroleo Brasileiro and Organic Tea

-0.02

Correlation Coefficient

Petroleo Brasileiro  Organic Tea

Good diversification

The 3 months correlation between Petroleo and Organic is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Organic Tea Cosmetics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Organic Tea Cosmetics 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 Organic Tea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Organic Tea Cosmetics has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Organic Tea go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Organic Tea

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Organic Tea. But the stock apears to be less risky and, when comparing its historical volatility, Petroleo Brasileiro Petrobras is 47.38 times less risky than Organic Tea. The stock trades about -0.01 of its potential returns per unit of risk. The Organic Tea Cosmetics is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  10,000  in Organic Tea Cosmetics on September 30, 2024 and sell it today you would earn a total of  35,400  from holding Organic Tea Cosmetics or generate 354.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Organic Tea Cosmetics

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.

Organic Tea Cosmetics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Organic Tea Cosmetics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Organic Tea sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Organic Tea

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

The idea behind Petroleo Brasileiro Petrobras and Organic Tea Cosmetics 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.