Correlation Between Petrleo Brasileiro and Metalurgica Gerdau

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

Diversification Opportunities for Petrleo Brasileiro and Metalurgica Gerdau

0.36

Correlation Coefficient

Petrleo Brasileiro  Metalurgica Gerdau

Weak diversification

The 3 months correlation between Petrleo and Metalurgica is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Metalurgica Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metalurgica Gerdau 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 Metalurgica Gerdau. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metalurgica Gerdau has no effect on the direction of Petrleo Brasileiro i.e., Petrleo Brasileiro and Metalurgica Gerdau go up and down completely randomly.

Pair Corralation between Petrleo Brasileiro and Metalurgica Gerdau

Assuming the 90 days trading horizon Petrleo Brasileiro SA is expected to generate 1.01 times more return on investment than Metalurgica Gerdau. However, Petrleo Brasileiro is 1.01 times more volatile than Metalurgica Gerdau SA. It trades about 0.11 of its potential returns per unit of risk. Metalurgica Gerdau SA is currently generating about 0.01 per unit of risk. If you would invest  1,464  in Petrleo Brasileiro SA on September 4, 2024 and sell it today you would earn a total of  2,486  from holding Petrleo Brasileiro SA or generate 169.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.8%
Values	Daily Returns

Petrleo Brasileiro SA  vs.  Metalurgica Gerdau SA

Petrleo Brasileiro

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Petrleo Brasileiro SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Metalurgica Gerdau

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metalurgica Gerdau SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metalurgica Gerdau may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Petrleo Brasileiro and Metalurgica Gerdau

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

The idea behind Petrleo Brasileiro SA and Metalurgica Gerdau SA 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.