Correlation Between Petroleo Brasileiro and DNXcorp

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

Diversification Opportunities for Petroleo Brasileiro and DNXcorp

0.31

Correlation Coefficient

Petroleo Brasileiro  DNXcorp

Weak diversification

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

Pair Corralation between Petroleo Brasileiro and DNXcorp

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 0.97 times more return on investment than DNXcorp. However, Petroleo Brasileiro Petrobras is 1.03 times less risky than DNXcorp. It trades about 0.13 of its potential returns per unit of risk. DNXcorp is currently generating about 0.04 per unit of risk. If you would invest  1,275  in Petroleo Brasileiro Petrobras on December 29, 2024 and sell it today you would earn a total of  163.00  from holding Petroleo Brasileiro Petrobras or generate 12.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.85%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  DNXcorp

Petroleo Brasileiro

Risk-Adjusted Performance

OK

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

DNXcorp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DNXcorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, DNXcorp is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Petroleo Brasileiro and DNXcorp

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

The idea behind Petroleo Brasileiro Petrobras and DNXcorp 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.