Correlation Between Telefonica and Petroleo Brasileiro

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

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

Diversification Opportunities for Telefonica and Petroleo Brasileiro

-0.65

Correlation Coefficient

Telefonica  Petroleo Brasileiro

Excellent diversification

The 3 months correlation between Telefonica and Petroleo is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica and Petroleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro and Telefonica 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 Telefonica 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 Telefonica i.e., Telefonica and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between Telefonica and Petroleo Brasileiro

Assuming the 90 days trading horizon Telefonica is expected to under-perform the Petroleo Brasileiro. But the stock apears to be less risky and, when comparing its historical volatility, Telefonica is 22.02 times less risky than Petroleo Brasileiro. The stock trades about -0.15 of its potential returns per unit of risk. The Petroleo Brasileiro SA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  355.00  in Petroleo Brasileiro SA on October 23, 2024 and sell it today you would earn a total of  261.00  from holding Petroleo Brasileiro SA or generate 73.52% return on investment over 90 days.

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

Telefonica  vs.  Petroleo Brasileiro SA

Telefonica

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefonica has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Petroleo Brasileiro

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, Petroleo Brasileiro displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonica and Petroleo Brasileiro

The main advantage of trading using opposite Telefonica and Petroleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telefonica 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 Telefonica and Petroleo 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.