Correlation Between Petroleo Brasileiro and XTM

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

Diversification Opportunities for Petroleo Brasileiro and XTM

0.29

Correlation Coefficient

Petroleo Brasileiro  XTM

Modest diversification

The 3 months correlation between Petroleo and XTM is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and XTM Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XTM Inc 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 XTM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XTM Inc has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and XTM go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and XTM

Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 1.61 times less return on investment than XTM. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 6.4 times less risky than XTM. It trades about 0.14 of its potential returns per unit of risk. XTM Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4.05  in XTM Inc on December 27, 2024 and sell it today you would lose (0.44) from holding XTM Inc or give up 10.86% of portfolio value over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  XTM Inc

Petroleo Brasileiro

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro Petrobras are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, Petroleo Brasileiro reported solid returns over the last few months and may actually be approaching a breakup point.

XTM Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in XTM Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady forward indicators, XTM reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and XTM

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

The idea behind Petroleo Brasileiro Petrobras and XTM Inc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.