Correlation Between Petroleo Brasileiro and INDIKA ENERGY

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

Diversification Opportunities for Petroleo Brasileiro and INDIKA ENERGY

0.33

Correlation Coefficient

Petroleo Brasileiro  INDIKA ENERGY

Weak diversification

The 3 months correlation between Petroleo and INDIKA is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and INDIKA ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDIKA ENERGY 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 INDIKA ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDIKA ENERGY has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and INDIKA ENERGY go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and INDIKA ENERGY

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 6.52 times less return on investment than INDIKA ENERGY. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 2.47 times less risky than INDIKA ENERGY. It trades about 0.02 of its potential returns per unit of risk. INDIKA ENERGY is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  8.95  in INDIKA ENERGY on October 16, 2024 and sell it today you would earn a total of  0.70  from holding INDIKA ENERGY or generate 7.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  INDIKA ENERGY

Petroleo Brasileiro

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro Petrobras are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

INDIKA ENERGY

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in INDIKA ENERGY are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, INDIKA ENERGY exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and INDIKA ENERGY

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

The idea behind Petroleo Brasileiro Petrobras and INDIKA ENERGY 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.