Correlation Between Petroleo Brasileiro and Fjordland Exploration

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

Diversification Opportunities for Petroleo Brasileiro and Fjordland Exploration

-0.08

Correlation Coefficient

Petroleo Brasileiro  Fjordland Exploration

Good diversification

The 3 months correlation between Petroleo and Fjordland is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Fjordland Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fjordland Exploration 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 Fjordland Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fjordland Exploration has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Fjordland Exploration go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Fjordland Exploration

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 3.37 times less return on investment than Fjordland Exploration. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 6.26 times less risky than Fjordland Exploration. It trades about 0.07 of its potential returns per unit of risk. Fjordland Exploration is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Fjordland Exploration on October 13, 2024 and sell it today you would lose (3.00) from holding Fjordland Exploration or give up 75.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Fjordland Exploration

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.

Fjordland Exploration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fjordland Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Fjordland Exploration is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Petroleo Brasileiro and Fjordland Exploration

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

The idea behind Petroleo Brasileiro Petrobras and Fjordland Exploration 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.