Correlation Between Petroleo Brasileiro and Next Generation

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

Diversification Opportunities for Petroleo Brasileiro and Next Generation

0.34

Correlation Coefficient

Petroleo Brasileiro  Next Generation

Weak diversification

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

Pair Corralation between Petroleo Brasileiro and Next Generation

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 4.49 times less return on investment than Next Generation. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 8.7 times less risky than Next Generation. It trades about 0.14 of its potential returns per unit of risk. Next Generation Management is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.17  in Next Generation Management on December 21, 2024 and sell it today you would earn a total of  0.01  from holding Next Generation Management or generate 5.88% return on investment over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  Next Generation Management

Petroleo Brasileiro

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro Petrobras are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Petroleo Brasileiro reported solid returns over the last few months and may actually be approaching a breakup point.

Next Generation Mana

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Next Generation Management are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Next Generation exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Next Generation

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

The idea behind Petroleo Brasileiro Petrobras and Next Generation Management 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.