Correlation Between Petroleo Brasileiro and Orascom Investment

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

Diversification Opportunities for Petroleo Brasileiro and Orascom Investment

0.26

Correlation Coefficient

Petroleo Brasileiro  Orascom Investment

Modest diversification

The 3 months correlation between Petroleo and Orascom is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Orascom Investment Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orascom Investment 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 Orascom Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orascom Investment has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Orascom Investment go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Orascom Investment

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 4.39 times less return on investment than Orascom Investment. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 1.63 times less risky than Orascom Investment. It trades about 0.04 of its potential returns per unit of risk. Orascom Investment Holding is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  41.00  in Orascom Investment Holding on September 15, 2024 and sell it today you would earn a total of  13.00  from holding Orascom Investment Holding or generate 31.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	78.57%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Orascom Investment Holding

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.

Orascom Investment

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Orascom Investment Holding are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Orascom Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Orascom Investment

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

The idea behind Petroleo Brasileiro Petrobras and Orascom Investment Holding 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.