Correlation Between Petroleo Brasileiro and Lighthouse Hotel

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

Diversification Opportunities for Petroleo Brasileiro and Lighthouse Hotel

-0.27

Correlation Coefficient

Petroleo Brasileiro  Lighthouse Hotel

Very good diversification

The 3 months correlation between Petroleo and Lighthouse is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Lighthouse Hotel PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lighthouse Hotel 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 Lighthouse Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lighthouse Hotel PLC has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Lighthouse Hotel go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Lighthouse Hotel

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Lighthouse Hotel. But the stock apears to be less risky and, when comparing its historical volatility, Petroleo Brasileiro Petrobras is 1.72 times less risky than Lighthouse Hotel. The stock trades about -0.03 of its potential returns per unit of risk. The Lighthouse Hotel PLC is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  4,100  in Lighthouse Hotel PLC on September 14, 2024 and sell it today you would earn a total of  1,910  from holding Lighthouse Hotel PLC or generate 46.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	88.89%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Lighthouse Hotel 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.

Lighthouse Hotel PLC

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lighthouse Hotel PLC are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lighthouse Hotel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Lighthouse Hotel

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

The idea behind Petroleo Brasileiro Petrobras and Lighthouse Hotel 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.