Correlation Between Petroleo Brasileiro and BP PLC

Can any of the company-specific risk be diversified away by investing in both Petroleo Brasileiro and BP PLC 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 BP PLC 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 BP PLC DZ1, you can compare the effects of market volatilities on Petroleo Brasileiro and BP PLC 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 BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petroleo Brasileiro and BP PLC.

Diversification Opportunities for Petroleo Brasileiro and BP PLC

0.51

Correlation Coefficient

Petroleo Brasileiro  BP PLC

Very weak diversification

The 3 months correlation between Petroleo and BPE is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and BP PLC DZ1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP PLC DZ1 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 BP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP PLC DZ1 has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and BP PLC go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and BP PLC

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 9.23 times less return on investment than BP PLC. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 1.11 times less risky than BP PLC. It trades about 0.01 of its potential returns per unit of risk. BP PLC DZ1 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  448.00  in BP PLC DZ1 on September 16, 2024 and sell it today you would earn a total of  24.00  from holding BP PLC DZ1 or generate 5.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  BP PLC DZ1

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.

BP PLC DZ1

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP PLC DZ1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BP PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Petroleo Brasileiro and BP PLC

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

The idea behind Petroleo Brasileiro Petrobras and BP PLC DZ1 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.