Correlation Between Petrleo Brasileiro and IShares Trust

Can any of the company-specific risk be diversified away by investing in both Petrleo Brasileiro and IShares Trust 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 Petrleo Brasileiro and IShares Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Petrleo Brasileiro SA and iShares Trust , you can compare the effects of market volatilities on Petrleo Brasileiro and IShares Trust 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 Petrleo Brasileiro with a short position of IShares Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petrleo Brasileiro and IShares Trust.

Diversification Opportunities for Petrleo Brasileiro and IShares Trust

0.32

Correlation Coefficient

Petrleo Brasileiro  IShares Trust

Weak diversification

The 3 months correlation between Petrleo and IShares is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust and Petrleo 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 Petrleo Brasileiro SA are associated (or correlated) with IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of Petrleo Brasileiro i.e., Petrleo Brasileiro and IShares Trust go up and down completely randomly.

Pair Corralation between Petrleo Brasileiro and IShares Trust

Assuming the 90 days trading horizon Petrleo Brasileiro SA is expected to under-perform the IShares Trust. In addition to that, Petrleo Brasileiro is 1.39 times more volatile than iShares Trust . It trades about -0.35 of its total potential returns per unit of risk. iShares Trust is currently generating about -0.09 per unit of volatility. If you would invest  183,684  in iShares Trust on September 23, 2024 and sell it today you would lose (3,584) from holding iShares Trust or give up 1.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.48%
Values	Daily Returns

Petrleo Brasileiro SA  vs.  iShares Trust

Petrleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrleo Brasileiro SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Petrleo Brasileiro is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, IShares Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Petrleo Brasileiro and IShares Trust

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

The idea behind Petrleo Brasileiro SA and iShares Trust 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.