Correlation Between Petrleo Brasileiro and Southern Copper

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

Diversification Opportunities for Petrleo Brasileiro and Southern Copper

-0.33

Correlation Coefficient

Petrleo Brasileiro  Southern Copper

Very good diversification

The 3 months correlation between Petrleo and Southern is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Southern Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Copper 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 Southern Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Copper has no effect on the direction of Petrleo Brasileiro i.e., Petrleo Brasileiro and Southern Copper go up and down completely randomly.

Pair Corralation between Petrleo Brasileiro and Southern Copper

Assuming the 90 days trading horizon Petrleo Brasileiro is expected to generate 1.29 times less return on investment than Southern Copper. In addition to that, Petrleo Brasileiro is 1.01 times more volatile than Southern Copper. It trades about 0.06 of its total potential returns per unit of risk. Southern Copper is currently generating about 0.07 per unit of volatility. If you would invest  109,708  in Southern Copper on September 24, 2024 and sell it today you would earn a total of  105,292  from holding Southern Copper or generate 95.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Petrleo Brasileiro SA  vs.  Southern Copper

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.

Southern Copper

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Copper are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Southern Copper may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Petrleo Brasileiro and Southern Copper

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

The idea behind Petrleo Brasileiro SA and Southern Copper 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.