Correlation Between Petroleo Brasileiro and Repsol

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

Diversification Opportunities for Petroleo Brasileiro and Repsol

0.75

Correlation Coefficient

Petroleo Brasileiro  Repsol

Poor diversification

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

Pair Corralation between Petroleo Brasileiro and Repsol

Assuming the 90 days trading horizon Petroleo Brasileiro SA is expected to generate 1.61 times more return on investment than Repsol. However, Petroleo Brasileiro is 1.61 times more volatile than Repsol. It trades about 0.01 of its potential returns per unit of risk. Repsol is currently generating about -0.02 per unit of risk. If you would invest  631.00  in Petroleo Brasileiro SA on December 2, 2024 and sell it today you would lose (5.00) from holding Petroleo Brasileiro SA or give up 0.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.25%
Values	Daily Returns

Petroleo Brasileiro SA  vs.  Repsol

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.

Repsol

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Repsol are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Repsol may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Petroleo Brasileiro and Repsol

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

The idea behind Petroleo Brasileiro SA and Repsol 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.