Correlation Between Petroleo Brasileiro and Kainos Group

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

Diversification Opportunities for Petroleo Brasileiro and Kainos Group

0.34

Correlation Coefficient

Petroleo Brasileiro  Kainos Group

Weak diversification

The 3 months correlation between Petroleo and Kainos is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Kainos Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kainos Group plc 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 Kainos Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kainos Group plc has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Kainos Group go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Kainos Group

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 16.16 times less return on investment than Kainos Group. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 7.27 times less risky than Kainos Group. It trades about 0.02 of its potential returns per unit of risk. Kainos Group plc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,158  in Kainos Group plc on September 19, 2024 and sell it today you would lose (87.00) from holding Kainos Group plc or give up 7.51% of portfolio value over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  Kainos Group plc

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.

Kainos Group plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kainos Group plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Petroleo Brasileiro and Kainos Group

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

The idea behind Petroleo Brasileiro Petrobras and Kainos Group plc 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.