Correlation Between Petroleo Brasileiro and First Capital

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

Diversification Opportunities for Petroleo Brasileiro and First Capital

0.43

Correlation Coefficient

Petroleo Brasileiro  First Capital

Very weak diversification

The 3 months correlation between Petroleo and First is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and First Capital Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital Bancshares 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 First Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Capital Bancshares has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and First Capital go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and First Capital

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the First Capital. In addition to that, Petroleo Brasileiro is 21.47 times more volatile than First Capital Bancshares. It trades about -0.05 of its total potential returns per unit of risk. First Capital Bancshares is currently generating about 0.22 per unit of volatility. If you would invest  1,011  in First Capital Bancshares on September 17, 2024 and sell it today you would earn a total of  4.00  from holding First Capital Bancshares or generate 0.4% 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.  First Capital Bancshares

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.

First Capital Bancshares

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital Bancshares are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, First Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Petroleo Brasileiro and First Capital

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

The idea behind Petroleo Brasileiro Petrobras and First Capital Bancshares 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.