Correlation Between Petroleo Brasileiro and Westport Fuel

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

Diversification Opportunities for Petroleo Brasileiro and Westport Fuel

0.49

Correlation Coefficient

Petroleo Brasileiro  Westport Fuel

Very weak diversification

The 3 months correlation between Petroleo and Westport is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Westport Fuel Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westport Fuel Systems 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 Westport Fuel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westport Fuel Systems has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Westport Fuel go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Westport Fuel

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 0.57 times more return on investment than Westport Fuel. However, Petroleo Brasileiro Petrobras is 1.74 times less risky than Westport Fuel. It trades about 0.01 of its potential returns per unit of risk. Westport Fuel Systems is currently generating about -0.04 per unit of risk. If you would invest  1,332  in Petroleo Brasileiro Petrobras on September 14, 2024 and sell it today you would earn a total of  29.00  from holding Petroleo Brasileiro Petrobras or generate 2.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Westport Fuel Systems

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.

Westport Fuel Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westport Fuel Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Petroleo Brasileiro and Westport Fuel

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

The idea behind Petroleo Brasileiro Petrobras and Westport Fuel Systems 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.