Correlation Between Petroleo Brasileiro and Galp Energa

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

Diversification Opportunities for Petroleo Brasileiro and Galp Energa

-0.5

Correlation Coefficient

Petroleo Brasileiro  Galp Energa

Very good diversification

The 3 months correlation between Petroleo and Galp is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Galp Energa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galp Energa 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 Galp Energa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galp Energa has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Galp Energa go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Galp Energa

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 0.84 times more return on investment than Galp Energa. However, Petroleo Brasileiro Petrobras is 1.18 times less risky than Galp Energa. It trades about 0.1 of its potential returns per unit of risk. Galp Energa is currently generating about 0.03 per unit of risk. If you would invest  1,326  in Petroleo Brasileiro Petrobras on November 28, 2024 and sell it today you would earn a total of  118.00  from holding Petroleo Brasileiro Petrobras or generate 8.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Galp Energa

Petroleo Brasileiro

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro Petrobras are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Petroleo Brasileiro may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Galp Energa

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Galp Energa are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Galp Energa is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Petroleo Brasileiro and Galp Energa

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

The idea behind Petroleo Brasileiro Petrobras and Galp Energa 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.