Correlation Between Petroleo Brasileiro and SPDR Dow

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

Diversification Opportunities for Petroleo Brasileiro and SPDR Dow

-0.24

Correlation Coefficient

Petroleo Brasileiro  SPDR Dow

Very good diversification

The 3 months correlation between Petroleo and SPDR is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones 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 SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and SPDR Dow go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and SPDR Dow

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the SPDR Dow. In addition to that, Petroleo Brasileiro is 1.59 times more volatile than SPDR Dow Jones. It trades about -0.01 of its total potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.17 per unit of volatility. If you would invest  712,241  in SPDR Dow Jones on September 30, 2024 and sell it today you would earn a total of  163,559  from holding SPDR Dow Jones or generate 22.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  SPDR Dow Jones

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.

SPDR Dow Jones

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR Dow 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 SPDR Dow

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

The idea behind Petroleo Brasileiro Petrobras and SPDR Dow Jones 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .