Correlation Between Shell PLC and Petroleo Brasileiro

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

Diversification Opportunities for Shell PLC and Petroleo Brasileiro

0.75

Correlation Coefficient

Shell PLC  Petroleo Brasileiro

Poor diversification

The 3 months correlation between Shell and Petroleo is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC ADR and Petroleo Brasileiro Petrobras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo 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 Petroleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petroleo Brasileiro has no effect on the direction of Shell PLC i.e., Shell PLC and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between Shell PLC and Petroleo Brasileiro

Given the investment horizon of 90 days Shell PLC is expected to generate 3.58 times less return on investment than Petroleo Brasileiro. But when comparing it to its historical volatility, Shell PLC ADR is 1.62 times less risky than Petroleo Brasileiro. It trades about 0.04 of its potential returns per unit of risk. Petroleo Brasileiro Petrobras is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  723.00  in Petroleo Brasileiro Petrobras on November 19, 2024 and sell it today you would earn a total of  709.00  from holding Petroleo Brasileiro Petrobras or generate 98.06% return on investment over 90 days.

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

Shell PLC ADR  vs.  Petroleo Brasileiro Petrobras

Shell PLC ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC ADR are ranked lower than 3 (%) 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.

Petroleo Brasileiro

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro Petrobras are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Petroleo Brasileiro may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Shell PLC and Petroleo Brasileiro

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

The idea behind Shell PLC ADR and Petroleo Brasileiro Petrobras 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.