Correlation Between Petroleo Brasileiro and Epiroc AB

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

Diversification Opportunities for Petroleo Brasileiro and Epiroc AB

0.06

Correlation Coefficient

Petroleo Brasileiro  Epiroc AB

Significant diversification

The 3 months correlation between Petroleo and Epiroc is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Epiroc AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epiroc AB 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 Epiroc AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Epiroc AB has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Epiroc AB go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Epiroc AB

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Epiroc AB. In addition to that, Petroleo Brasileiro is 1.34 times more volatile than Epiroc AB. It trades about -0.22 of its total potential returns per unit of risk. Epiroc AB is currently generating about 0.0 per unit of volatility. If you would invest  19,590  in Epiroc AB on September 24, 2024 and sell it today you would lose (55.00) from holding Epiroc AB or give up 0.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Epiroc AB

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 latest unsteady performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Epiroc AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Epiroc AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Epiroc AB is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Petroleo Brasileiro and Epiroc AB

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

The idea behind Petroleo Brasileiro Petrobras and Epiroc AB 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.