Correlation Between Petroleo Brasileiro and Ceconomy

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

Diversification Opportunities for Petroleo Brasileiro and Ceconomy

0.1

Correlation Coefficient

Petroleo Brasileiro  Ceconomy

Average diversification

The 3 months correlation between Petroleo and Ceconomy is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Ceconomy AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceconomy AG ADR 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 Ceconomy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceconomy AG ADR has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Ceconomy go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Ceconomy

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 1.39 times less return on investment than Ceconomy. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 2.81 times less risky than Ceconomy. It trades about 0.08 of its potential returns per unit of risk. Ceconomy AG ADR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  36.00  in Ceconomy AG ADR on September 22, 2024 and sell it today you would earn a total of  14.00  from holding Ceconomy AG ADR or generate 38.89% return on investment over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  Ceconomy AG ADR

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.

Ceconomy AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ceconomy AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Ceconomy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Petroleo Brasileiro and Ceconomy

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

The idea behind Petroleo Brasileiro Petrobras and Ceconomy AG ADR 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.