Correlation Between Petroleo Brasileiro and TotalEnergies

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

Diversification Opportunities for Petroleo Brasileiro and TotalEnergies

0.36

Correlation Coefficient

Petroleo Brasileiro  TotalEnergies

Weak diversification

The 3 months correlation between Petroleo and TotalEnergies is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and TotalEnergies SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TotalEnergies SE 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 TotalEnergies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TotalEnergies SE has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and TotalEnergies go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and TotalEnergies

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 1.05 times more return on investment than TotalEnergies. However, Petroleo Brasileiro is 1.05 times more volatile than TotalEnergies SE. It trades about -0.04 of its potential returns per unit of risk. TotalEnergies SE is currently generating about -0.12 per unit of risk. If you would invest  1,423  in Petroleo Brasileiro Petrobras on September 16, 2024 and sell it today you would lose (62.00) from holding Petroleo Brasileiro Petrobras or give up 4.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  TotalEnergies SE

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.

TotalEnergies SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TotalEnergies SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Petroleo Brasileiro and TotalEnergies

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

The idea behind Petroleo Brasileiro Petrobras and TotalEnergies SE 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.