Correlation Between Petroleo Brasileiro and Savoy Energy

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

Diversification Opportunities for Petroleo Brasileiro and Savoy Energy

0.0

Correlation Coefficient

Petroleo Brasileiro  Savoy Energy

Pay attention - limited upside

The 3 months correlation between Petroleo and Savoy is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Savoy Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Savoy Energy 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 Savoy Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Savoy Energy Corp has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Savoy Energy go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Savoy Energy

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 11.05 times less return on investment than Savoy Energy. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 21.88 times less risky than Savoy Energy. It trades about 0.08 of its potential returns per unit of risk. Savoy Energy Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Savoy Energy Corp on September 23, 2024 and sell it today you would earn a total of  0.00  from holding Savoy Energy Corp or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Savoy Energy Corp

Petroleo Brasileiro

Risk-Adjusted Performance

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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.

Savoy Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Savoy Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Savoy Energy is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Petroleo Brasileiro and Savoy Energy

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

The idea behind Petroleo Brasileiro Petrobras and Savoy Energy 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.