Correlation Between Petroleo Brasileiro and Caixabank

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

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

Diversification Opportunities for Petroleo Brasileiro and Caixabank

0.84

Correlation Coefficient

Petroleo Brasileiro  Caixabank

Very poor diversification

The 3 months correlation between Petroleo and Caixabank is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro SA and Caixabank SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caixabank SA and Petroleo Brasileiro 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 Petroleo Brasileiro SA are associated (or correlated) with Caixabank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caixabank SA has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Caixabank go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Caixabank

Assuming the 90 days trading horizon Petroleo Brasileiro is expected to generate 2.79 times less return on investment than Caixabank. In addition to that, Petroleo Brasileiro is 1.32 times more volatile than Caixabank SA. It trades about 0.08 of its total potential returns per unit of risk. Caixabank SA is currently generating about 0.3 per unit of volatility. If you would invest  516.00  in Caixabank SA on December 1, 2024 and sell it today you would earn a total of  153.00  from holding Caixabank SA or generate 29.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Petroleo Brasileiro SA  vs.  Caixabank SA

Petroleo Brasileiro

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, Petroleo Brasileiro may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Caixabank SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caixabank SA are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Caixabank exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Caixabank

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

The idea behind Petroleo Brasileiro SA and Caixabank 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.