Correlation Between Petro Rio and Raytheon Technologies

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

Diversification Opportunities for Petro Rio and Raytheon Technologies

-0.62

Correlation Coefficient

Petro Rio  Raytheon Technologies

Excellent diversification

The 3 months correlation between Petro and Raytheon is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Petro Rio SA and Raytheon Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytheon Technologies 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 Raytheon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytheon Technologies has no effect on the direction of Petro Rio i.e., Petro Rio and Raytheon Technologies go up and down completely randomly.

Pair Corralation between Petro Rio and Raytheon Technologies

Assuming the 90 days trading horizon Petro Rio SA is expected to under-perform the Raytheon Technologies. In addition to that, Petro Rio is 1.34 times more volatile than Raytheon Technologies. It trades about -0.02 of its total potential returns per unit of risk. Raytheon Technologies is currently generating about 0.08 per unit of volatility. If you would invest  10,902  in Raytheon Technologies on September 15, 2024 and sell it today you would earn a total of  714.00  from holding Raytheon Technologies or generate 6.55% return on investment over 90 days.

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

Petro Rio SA  vs.  Raytheon Technologies

Petro Rio SA

Risk-Adjusted Performance

0 of 100

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Raytheon Technologies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Raytheon Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Petro Rio and Raytheon Technologies

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

The idea behind Petro Rio SA and Raytheon Technologies 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.