Correlation Between Shell PLC and Petróleo Brasileiro

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

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

Diversification Opportunities for Shell PLC and Petróleo Brasileiro

0.56

Correlation Coefficient

Shell PLC  Petróleo Brasileiro

Very weak diversification

The 3 months correlation between Shell and Petróleo is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC ADR and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petróleo Brasileiro and Shell PLC 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 Shell PLC ADR are associated (or correlated) with Petróleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petróleo Brasileiro has no effect on the direction of Shell PLC i.e., Shell PLC and Petróleo Brasileiro go up and down completely randomly.

Pair Corralation between Shell PLC and Petróleo Brasileiro

Given the investment horizon of 90 days Shell PLC is expected to generate 1.23 times less return on investment than Petróleo Brasileiro. But when comparing it to its historical volatility, Shell PLC ADR is 1.14 times less risky than Petróleo Brasileiro. It trades about 0.15 of its potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,258  in Petrleo Brasileiro SA on November 28, 2024 and sell it today you would earn a total of  59.00  from holding Petrleo Brasileiro SA or generate 4.69% return on investment over 90 days.

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

Shell PLC ADR  vs.  Petrleo Brasileiro SA

Shell PLC ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Shell PLC is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Petróleo Brasileiro

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Petrleo Brasileiro SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Petróleo Brasileiro is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shell PLC and Petróleo Brasileiro

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

The idea behind Shell PLC ADR 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.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.