Correlation Between Petroleo Brasileiro and Royalty Management

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

Diversification Opportunities for Petroleo Brasileiro and Royalty Management

-0.06

Correlation Coefficient

Petroleo Brasileiro  Royalty Management

Good diversification

The 3 months correlation between Petroleo and Royalty is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Royalty Management Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royalty Management 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 Royalty Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royalty Management has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Royalty Management go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Royalty Management

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 56.58 times less return on investment than Royalty Management. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 6.17 times less risky than Royalty Management. It trades about 0.04 of its potential returns per unit of risk. Royalty Management Holding is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  1.26  in Royalty Management Holding on October 7, 2024 and sell it today you would earn a total of  0.62  from holding Royalty Management Holding or generate 49.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	55.0%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Royalty Management 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 latest unfluctuating performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Royalty Management

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royalty Management Holding are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Royalty Management showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Royalty Management

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

The idea behind Petroleo Brasileiro Petrobras and Royalty Management 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.