Correlation Between Petroleo Brasileiro and Eni SPA

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

Diversification Opportunities for Petroleo Brasileiro and Eni SPA

0.55

Correlation Coefficient

Petroleo Brasileiro  Eni SPA

Very weak diversification

The 3 months correlation between Petroleo and Eni is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Eni SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eni SpA ADR 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 Eni SPA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eni SpA ADR has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Eni SPA go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Eni SPA

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 1.15 times less return on investment than Eni SPA. In addition to that, Petroleo Brasileiro is 1.61 times more volatile than Eni SpA ADR. It trades about 0.13 of its total potential returns per unit of risk. Eni SpA ADR is currently generating about 0.25 per unit of volatility. If you would invest  2,650  in Eni SpA ADR on December 27, 2024 and sell it today you would earn a total of  441.00  from holding Eni SpA ADR or generate 16.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Eni SpA ADR

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 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, Petroleo Brasileiro reported solid returns over the last few months and may actually be approaching a breakup point.

Eni SpA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eni SpA ADR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Eni SPA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Eni SPA

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

The idea behind Petroleo Brasileiro Petrobras and Eni SpA ADR 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.