Correlation Between Petroleo Brasileiro and Target

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

Diversification Opportunities for Petroleo Brasileiro and Target

-0.05

Correlation Coefficient

Petroleo Brasileiro  Target

Good diversification

The 3 months correlation between Petroleo and Target is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Target go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Target

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 0.82 times more return on investment than Target. However, Petroleo Brasileiro Petrobras is 1.22 times less risky than Target. It trades about 0.13 of its potential returns per unit of risk. Target is currently generating about -0.2 per unit of risk. If you would invest  1,275  in Petroleo Brasileiro Petrobras on December 28, 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 Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Target

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 unsteady fundamental drivers, Petroleo Brasileiro reported solid returns over the last few months and may actually be approaching a breakup point.

Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Petroleo Brasileiro and Target

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

The idea behind Petroleo Brasileiro Petrobras and Target 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.