Correlation Between Petroleo Brasileiro and EDP Renovveis

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

Diversification Opportunities for Petroleo Brasileiro and EDP Renovveis

0.48

Correlation Coefficient

Petroleo Brasileiro  EDP Renovveis

Very weak diversification

The 3 months correlation between Petroleo and EDP is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and EDP Renovveis SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Renovveis SA 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 EDP Renovveis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Renovveis SA has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and EDP Renovveis go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and EDP Renovveis

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 1.16 times more return on investment than EDP Renovveis. However, Petroleo Brasileiro is 1.16 times more volatile than EDP Renovveis SA. It trades about -0.08 of its potential returns per unit of risk. EDP Renovveis SA is currently generating about -0.25 per unit of risk. If you would invest  1,362  in Petroleo Brasileiro Petrobras on September 22, 2024 and sell it today you would lose (58.00) from holding Petroleo Brasileiro Petrobras or give up 4.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  EDP Renovveis SA

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 recent stock price agitation, may contribute to short-term losses for the retail investors.

EDP Renovveis SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Petroleo Brasileiro and EDP Renovveis

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

The idea behind Petroleo Brasileiro Petrobras and EDP Renovveis SA 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.