Correlation Between Southern Copper and Petrleo Brasileiro

Can any of the company-specific risk be diversified away by investing in both Southern Copper and Petrleo Brasileiro 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 Southern Copper and Petrleo Brasileiro into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Southern Copper and Petrleo Brasileiro

-0.33

Correlation Coefficient

Southern Copper  Petrleo Brasileiro

Very good diversification

The 3 months correlation between Southern and Petrleo is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Southern Copper and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrleo Brasileiro and Southern Copper 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 Southern Copper are associated (or correlated) with Petrleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrleo Brasileiro has no effect on the direction of Southern Copper i.e., Southern Copper and Petrleo Brasileiro go up and down completely randomly.

Pair Corralation between Southern Copper and Petrleo Brasileiro

Assuming the 90 days trading horizon Southern Copper is expected to generate 0.25 times more return on investment than Petrleo Brasileiro. However, Southern Copper is 4.02 times less risky than Petrleo Brasileiro. It trades about 0.22 of its potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about -0.14 per unit of risk. If you would invest  210,190  in Southern Copper on September 20, 2024 and sell it today you would earn a total of  4,810  from holding Southern Copper or generate 2.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Southern Copper  vs.  Petrleo Brasileiro SA

Southern Copper

Risk-Adjusted Performance

5 of 100

Modest

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

Petrleo Brasileiro

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Petrleo Brasileiro is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Southern Copper and Petrleo Brasileiro

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

The idea behind Southern Copper and Petrleo Brasileiro 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.