Correlation Between Petroleo Brasileiro and SMC Investment

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

Diversification Opportunities for Petroleo Brasileiro and SMC Investment

0.02

Correlation Coefficient

Petroleo Brasileiro  SMC Investment

Significant diversification

The 3 months correlation between Petroleo and SMC is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and SMC Investment Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Investment Trading 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 SMC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMC Investment Trading has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and SMC Investment go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and SMC Investment

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the SMC Investment. But the stock apears to be less risky and, when comparing its historical volatility, Petroleo Brasileiro Petrobras is 1.5 times less risky than SMC Investment. The stock trades about -0.25 of its potential returns per unit of risk. The SMC Investment Trading is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  675,000  in SMC Investment Trading on September 25, 2024 and sell it today you would earn a total of  112,000  from holding SMC Investment Trading or generate 16.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  SMC Investment Trading

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 conflicting 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.

SMC Investment Trading

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMC Investment Trading has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, SMC Investment is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Petroleo Brasileiro and SMC Investment

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

The idea behind Petroleo Brasileiro Petrobras and SMC Investment Trading 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.