Correlation Between Petroleo Brasileiro and CAC Next

Can any of the company-specific risk be diversified away by investing in both Petroleo Brasileiro and CAC Next 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 CAC Next 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 CAC Next 20, you can compare the effects of market volatilities on Petroleo Brasileiro and CAC Next 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 CAC Next. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petroleo Brasileiro and CAC Next.

Diversification Opportunities for Petroleo Brasileiro and CAC Next

0.09

Correlation Coefficient

Petroleo Brasileiro  CAC Next

Significant diversification

The 3 months correlation between Petroleo and CAC is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and CAC Next 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAC Next 20 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 CAC Next. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAC Next 20 has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and CAC Next go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and CAC Next

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the CAC Next. In addition to that, Petroleo Brasileiro is 2.02 times more volatile than CAC Next 20. It trades about -0.09 of its total potential returns per unit of risk. CAC Next 20 is currently generating about -0.06 per unit of volatility. If you would invest  1,112,992  in CAC Next 20 on September 25, 2024 and sell it today you would lose (35,068) from holding CAC Next 20 or give up 3.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  CAC Next 20

Pair Trading with Petroleo Brasileiro and CAC Next

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

The idea behind Petroleo Brasileiro Petrobras and CAC Next 20 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.