Correlation Between Petroleo Brasileiro and Mastercard Incorporated

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

Diversification Opportunities for Petroleo Brasileiro and Mastercard Incorporated

-0.24

Correlation Coefficient

Petroleo Brasileiro  Mastercard Incorporated

Very good diversification

The 3 months correlation between Petroleo and Mastercard is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Mastercard Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard Incorporated 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 Mastercard Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard Incorporated has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Mastercard Incorporated go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Mastercard Incorporated

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 1.96 times less return on investment than Mastercard Incorporated. In addition to that, Petroleo Brasileiro is 1.4 times more volatile than Mastercard Incorporated. It trades about 0.04 of its total potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.11 per unit of volatility. If you would invest  6,324  in Mastercard Incorporated on December 5, 2024 and sell it today you would earn a total of  4,465  from holding Mastercard Incorporated or generate 70.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.49%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Mastercard Incorporated

Petroleo Brasileiro

Risk-Adjusted Performance

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.

Mastercard Incorporated

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Mastercard Incorporated may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Petroleo Brasileiro and Mastercard Incorporated

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

The idea behind Petroleo Brasileiro Petrobras and Mastercard Incorporated 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.