Correlation Between Petroleo Brasileiro and SPDR SP

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

Diversification Opportunities for Petroleo Brasileiro and SPDR SP

-0.28

Correlation Coefficient

Petroleo Brasileiro  SPDR SP

Very good diversification

The 3 months correlation between Petroleo and SPDR is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and SPDR SP Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Financials 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Financials has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and SPDR SP go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and SPDR SP

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 2.05 times more return on investment than SPDR SP. However, Petroleo Brasileiro is 2.05 times more volatile than SPDR SP Financials. It trades about 0.07 of its potential returns per unit of risk. SPDR SP Financials is currently generating about 0.07 per unit of risk. If you would invest  721.00  in Petroleo Brasileiro Petrobras on September 29, 2024 and sell it today you would earn a total of  542.00  from holding Petroleo Brasileiro Petrobras or generate 75.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  SPDR SP Financials

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.

SPDR SP Financials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Financials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Petroleo Brasileiro and SPDR SP

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

The idea behind Petroleo Brasileiro Petrobras and SPDR SP Financials 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.