Correlation Between Petroleo Brasileiro and Egyptian Chemical

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

Diversification Opportunities for Petroleo Brasileiro and Egyptian Chemical

0.27

Correlation Coefficient

Petroleo Brasileiro  Egyptian Chemical

Modest diversification

The 3 months correlation between Petroleo and Egyptian is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Egyptian Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Egyptian Chemical 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 Egyptian Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Egyptian Chemical has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Egyptian Chemical go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Egyptian Chemical

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 1.23 times less return on investment than Egyptian Chemical. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 1.21 times less risky than Egyptian Chemical. It trades about 0.05 of its potential returns per unit of risk. Egyptian Chemical Industries is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  723.00  in Egyptian Chemical Industries on September 15, 2024 and sell it today you would earn a total of  57.00  from holding Egyptian Chemical Industries or generate 7.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	78.57%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Egyptian Chemical Industries

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.

Egyptian Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Egyptian Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Petroleo Brasileiro and Egyptian Chemical

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

The idea behind Petroleo Brasileiro Petrobras and Egyptian Chemical Industries 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.