Correlation Between Exxon and Petrleo Brasileiro

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

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

Diversification Opportunities for Exxon and Petrleo Brasileiro

0.39

Correlation Coefficient

Exxon  Petrleo Brasileiro

Weak diversification

The 3 months correlation between Exxon and Petrleo is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrleo Brasileiro and Exxon 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 Exxon Mobil 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 Exxon i.e., Exxon and Petrleo Brasileiro go up and down completely randomly.

Pair Corralation between Exxon and Petrleo Brasileiro

Assuming the 90 days trading horizon Exxon Mobil is expected to under-perform the Petrleo Brasileiro. But the stock apears to be less risky and, when comparing its historical volatility, Exxon Mobil is 1.11 times less risky than Petrleo Brasileiro. The stock trades about -0.07 of its potential returns per unit of risk. The Petrleo Brasileiro SA is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  27,431  in Petrleo Brasileiro SA on October 7, 2024 and sell it today you would lose (431.00) from holding Petrleo Brasileiro SA or give up 1.57% of portfolio value over 90 days.

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

Exxon Mobil  vs.  Petrleo Brasileiro SA

Exxon Mobil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exxon Mobil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 Exxon and Petrleo Brasileiro

The main advantage of trading using opposite Exxon and Petrleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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 Exxon Mobil 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.