Correlation Between Petroleo Brasileiro and Telefonica

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

Diversification Opportunities for Petroleo Brasileiro and Telefonica

-0.51

Correlation Coefficient

Petroleo Brasileiro  Telefonica

Excellent diversification

The 3 months correlation between Petroleo and Telefonica is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro SA and Telefonica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica 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 Telefonica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Telefonica go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Telefonica

Assuming the 90 days trading horizon Petroleo Brasileiro SA is expected to generate 10.82 times more return on investment than Telefonica. However, Petroleo Brasileiro is 10.82 times more volatile than Telefonica. It trades about 0.3 of its potential returns per unit of risk. Telefonica is currently generating about -0.33 per unit of risk. If you would invest  382.00  in Petroleo Brasileiro SA on October 8, 2024 and sell it today you would earn a total of  227.00  from holding Petroleo Brasileiro SA or generate 59.42% return on investment over 90 days.

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

Petroleo Brasileiro SA  vs.  Telefonica

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.

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.

Pair Trading with Petroleo Brasileiro and Telefonica

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

The idea behind Petroleo Brasileiro SA and Telefonica 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.