Correlation Between Petroleo Brasileiro and LG Electronics

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

Diversification Opportunities for Petroleo Brasileiro and LG Electronics

-0.13

Correlation Coefficient

Petroleo Brasileiro  LG Electronics

Good diversification

The 3 months correlation between Petroleo and LGLG is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and LG Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Electronics 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 LG Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Electronics has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and LG Electronics go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and LG Electronics

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 0.62 times more return on investment than LG Electronics. However, Petroleo Brasileiro Petrobras is 1.61 times less risky than LG Electronics. It trades about -0.01 of its potential returns per unit of risk. LG Electronics is currently generating about -0.04 per unit of risk. If you would invest  1,370  in Petroleo Brasileiro Petrobras on October 7, 2024 and sell it today you would lose (68.00) from holding Petroleo Brasileiro Petrobras or give up 4.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  LG Electronics

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.

LG Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Petroleo Brasileiro and LG Electronics

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

The idea behind Petroleo Brasileiro Petrobras and LG Electronics 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.