Correlation Between Petroleo Brasileiro and Trophy Resources

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

Diversification Opportunities for Petroleo Brasileiro and Trophy Resources

0.44

Correlation Coefficient

Petroleo Brasileiro  Trophy Resources

Very weak diversification

The 3 months correlation between Petroleo and Trophy is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Trophy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trophy Resources 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 Trophy Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trophy Resources has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Trophy Resources go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Trophy Resources

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 4.31 times less return on investment than Trophy Resources. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 5.74 times less risky than Trophy Resources. It trades about 0.07 of its potential returns per unit of risk. Trophy Resources is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.19  in Trophy Resources on September 12, 2024 and sell it today you would earn a total of  0.00  from holding Trophy Resources or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	6.67%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Trophy Resources

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.

Trophy Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Trophy Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Trophy Resources is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Petroleo Brasileiro and Trophy Resources

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

The idea behind Petroleo Brasileiro Petrobras and Trophy Resources 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 Stocks Directory module to find actively traded stocks across global markets.