Correlation Between Petrleo Brasileiro and Exxon Mobil

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

Diversification Opportunities for Petrleo Brasileiro and Exxon Mobil

-0.3

Correlation Coefficient

Petrleo Brasileiro  Exxon Mobil

Very good diversification

The 3 months correlation between Petrleo and Exxon is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil 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 Exxon Mobil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil has no effect on the direction of Petrleo Brasileiro i.e., Petrleo Brasileiro and Exxon Mobil go up and down completely randomly.

Pair Corralation between Petrleo Brasileiro and Exxon Mobil

Assuming the 90 days trading horizon Petrleo Brasileiro SA is expected to generate 1.16 times more return on investment than Exxon Mobil. However, Petrleo Brasileiro is 1.16 times more volatile than Exxon Mobil. It trades about -0.01 of its potential returns per unit of risk. Exxon Mobil is currently generating about -0.08 per unit of risk. If you would invest  3,983  in Petrleo Brasileiro SA on December 2, 2024 and sell it today you would lose (78.00) from holding Petrleo Brasileiro SA or give up 1.96% of portfolio value over 90 days.

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

Petrleo Brasileiro SA  vs.  Exxon Mobil

Petrleo Brasileiro

Risk-Adjusted Performance

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 comparatively stable basic indicators, Petrleo Brasileiro is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Exxon Mobil

Risk-Adjusted Performance

Very Weak

Over the last 90 days Exxon Mobil has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Petrleo Brasileiro and Exxon Mobil

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

The idea behind Petrleo Brasileiro SA and Exxon Mobil 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.