Correlation Between Petroleo Brasileiro and BRF SA

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

Diversification Opportunities for Petroleo Brasileiro and BRF SA

-0.37

Correlation Coefficient

Petroleo Brasileiro  BRF SA

Very good diversification

The 3 months correlation between Petroleo and BRF is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and BRF SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRF SA 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 BRF SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRF SA has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and BRF SA go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and BRF SA

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 17.73 times less return on investment than BRF SA. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 1.72 times less risky than BRF SA. It trades about 0.01 of its potential returns per unit of risk. BRF SA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  250.00  in BRF SA on September 23, 2024 and sell it today you would earn a total of  156.00  from holding BRF SA or generate 62.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.54%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  BRF SA

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.

BRF SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BRF SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BRF SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and BRF SA

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

The idea behind Petroleo Brasileiro Petrobras and BRF SA 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.