Correlation Between Petro Rio and Cosan SA

Can any of the company-specific risk be diversified away by investing in both Petro Rio and Cosan SA 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 Petro Rio and Cosan SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Petro Rio and Cosan SA

0.71

Correlation Coefficient

Petro Rio  Cosan SA

Poor diversification

The 3 months correlation between Petro and Cosan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Petro Rio SA and Cosan SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cosan SA and Petro Rio 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 Petro Rio SA are associated (or correlated) with Cosan SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cosan SA has no effect on the direction of Petro Rio i.e., Petro Rio and Cosan SA go up and down completely randomly.

Pair Corralation between Petro Rio and Cosan SA

Assuming the 90 days trading horizon Petro Rio SA is expected to generate 0.67 times more return on investment than Cosan SA. However, Petro Rio SA is 1.49 times less risky than Cosan SA. It trades about 0.01 of its potential returns per unit of risk. Cosan SA is currently generating about -0.02 per unit of risk. If you would invest  4,015  in Petro Rio SA on December 30, 2024 and sell it today you would lose (1.00) from holding Petro Rio SA or give up 0.02% of portfolio value over 90 days.

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

Petro Rio SA  vs.  Cosan SA

Petro Rio SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Petro Rio SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Petro Rio is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Cosan SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cosan SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cosan SA is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Petro Rio and Cosan SA

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

The idea behind Petro Rio SA and Cosan 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.