Correlation Between Petroleo Brasileiro and ShaMaran Petroleum

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

Diversification Opportunities for Petroleo Brasileiro and ShaMaran Petroleum

0.59

Correlation Coefficient

Petroleo Brasileiro  ShaMaran Petroleum

Very weak diversification

The 3 months correlation between Petroleo and ShaMaran is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and ShaMaran Petroleum Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ShaMaran Petroleum Corp 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 ShaMaran Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ShaMaran Petroleum Corp has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and ShaMaran Petroleum go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and ShaMaran Petroleum

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 7.1 times less return on investment than ShaMaran Petroleum. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 4.53 times less risky than ShaMaran Petroleum. It trades about 0.09 of its potential returns per unit of risk. ShaMaran Petroleum Corp is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  5.00  in ShaMaran Petroleum Corp on October 25, 2024 and sell it today you would earn a total of  3.00  from holding ShaMaran Petroleum Corp or generate 60.0% return on investment over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  ShaMaran Petroleum Corp

Petroleo Brasileiro

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro Petrobras are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Petroleo Brasileiro may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ShaMaran Petroleum Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ShaMaran Petroleum Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ShaMaran Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and ShaMaran Petroleum

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

The idea behind Petroleo Brasileiro Petrobras and ShaMaran Petroleum Corp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.