Correlation Between Petrleo Brasileiro and Banco Do

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

Diversification Opportunities for Petrleo Brasileiro and Banco Do

0.3

Correlation Coefficient

Petrleo Brasileiro  Banco Do

Weak diversification

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

Pair Corralation between Petrleo Brasileiro and Banco Do

Assuming the 90 days trading horizon Petrleo Brasileiro SA is expected to under-perform the Banco Do. But the preferred stock apears to be less risky and, when comparing its historical volatility, Petrleo Brasileiro SA is 1.13 times less risky than Banco Do. The preferred stock trades about -0.16 of its potential returns per unit of risk. The Banco do Estado is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,036  in Banco do Estado on December 2, 2024 and sell it today you would earn a total of  44.00  from holding Banco do Estado or generate 4.25% return on investment over 90 days.

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

Petrleo Brasileiro SA  vs.  Banco do Estado

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.

Banco do Estado

Risk-Adjusted Performance

Modest

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

Pair Trading with Petrleo Brasileiro and Banco Do

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

The idea behind Petrleo Brasileiro SA and Banco do Estado 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.