Correlation Between Petroleo Brasileiro and Sterling Capital

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

Diversification Opportunities for Petroleo Brasileiro and Sterling Capital

-0.25

Correlation Coefficient

Petroleo Brasileiro  Sterling Capital

Very good diversification

The 3 months correlation between Petroleo and Sterling is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Sterling Capital Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Special 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 Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Special has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Sterling Capital go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Sterling Capital

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Sterling Capital. But the stock apears to be less risky and, when comparing its historical volatility, Petroleo Brasileiro Petrobras is 1.2 times less risky than Sterling Capital. The stock trades about -0.06 of its potential returns per unit of risk. The Sterling Capital Special is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,023  in Sterling Capital Special on September 17, 2024 and sell it today you would lose (188.00) from holding Sterling Capital Special or give up 6.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Sterling Capital Special

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.

Sterling Capital Special

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sterling Capital Special has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Sterling Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Petroleo Brasileiro and Sterling Capital

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

The idea behind Petroleo Brasileiro Petrobras and Sterling Capital Special 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.