Correlation Between Petroleo Brasileiro and Galp Energia

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

Diversification Opportunities for Petroleo Brasileiro and Galp Energia

-0.11

Correlation Coefficient

Petroleo Brasileiro  Galp Energia

Good diversification

The 3 months correlation between Petroleo and Galp is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Galp Energia SGPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galp Energia SGPS 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 Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galp Energia SGPS has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Galp Energia go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Galp Energia

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 1.05 times more return on investment than Galp Energia. However, Petroleo Brasileiro is 1.05 times more volatile than Galp Energia SGPS. It trades about -0.08 of its potential returns per unit of risk. Galp Energia SGPS is currently generating about -0.1 per unit of risk. If you would invest  1,423  in Petroleo Brasileiro Petrobras on October 7, 2024 and sell it today you would lose (121.00) from holding Petroleo Brasileiro Petrobras or give up 8.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Galp Energia SGPS

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 unfluctuating 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.

Galp Energia SGPS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Galp Energia SGPS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic 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 Galp Energia

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

The idea behind Petroleo Brasileiro Petrobras and Galp Energia SGPS 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.