Correlation Between Petroleo Brasileiro and Boa Concept

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

Diversification Opportunities for Petroleo Brasileiro and Boa Concept

0.7

Correlation Coefficient

Petroleo Brasileiro  Boa Concept

Poor diversification

The 3 months correlation between Petroleo and Boa is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Boa Concept SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boa Concept SA 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 Boa Concept. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boa Concept SA has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Boa Concept go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Boa Concept

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Boa Concept. But the stock apears to be less risky and, when comparing its historical volatility, Petroleo Brasileiro Petrobras is 1.96 times less risky than Boa Concept. The stock trades about -0.01 of its potential returns per unit of risk. The Boa Concept SA is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,690  in Boa Concept SA on December 5, 2024 and sell it today you would earn a total of  410.00  from holding Boa Concept SA or generate 24.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.72%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Boa Concept SA

Petroleo Brasileiro

Risk-Adjusted Performance

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.

Boa Concept SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Boa Concept SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Boa Concept reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Boa Concept

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

The idea behind Petroleo Brasileiro Petrobras and Boa Concept SA 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.