Correlation Between Petroleo Brasileiro and TotalEnergies

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

Diversification Opportunities for Petroleo Brasileiro and TotalEnergies

0.51

Correlation Coefficient

Petroleo Brasileiro  TotalEnergies

Very weak diversification

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

Pair Corralation between Petroleo Brasileiro and TotalEnergies

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 2.94 times less return on investment than TotalEnergies. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 2.1 times less risky than TotalEnergies. It trades about 0.12 of its potential returns per unit of risk. TotalEnergies EP Gabon is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  13,194  in TotalEnergies EP Gabon on December 30, 2024 and sell it today you would earn a total of  5,756  from holding TotalEnergies EP Gabon or generate 43.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.38%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  TotalEnergies EP Gabon

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

TotalEnergies EP Gabon

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TotalEnergies EP Gabon are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TotalEnergies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and TotalEnergies

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

The idea behind Petroleo Brasileiro Petrobras and TotalEnergies EP Gabon 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.