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 B , 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

0.28

Correlation Coefficient

Petroleo Brasileiro  GALP ENERGIA

Modest diversification

The 3 months correlation between Petroleo and GALP is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and GALP ENERGIA B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GALP ENERGIA B 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 B 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 is expected to generate 3.13 times less return on investment than GALP ENERGIA. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 1.04 times less risky than GALP ENERGIA. It trades about 0.02 of its potential returns per unit of risk. GALP ENERGIA B is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,316  in GALP ENERGIA B on October 3, 2024 and sell it today you would earn a total of  328.00  from holding GALP ENERGIA B or generate 24.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.26%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  GALP ENERGIA B

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.

GALP ENERGIA B

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 B 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.