Correlation Between Petrleo Brasileiro and Chevron Corp

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

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

Diversification Opportunities for Petrleo Brasileiro and Chevron Corp

-0.3

Correlation Coefficient

Petrleo Brasileiro  Chevron Corp

Very good diversification

The 3 months correlation between Petrleo and Chevron is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp and Petrleo 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 Petrleo Brasileiro SA are associated (or correlated) with Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Petrleo Brasileiro i.e., Petrleo Brasileiro and Chevron Corp go up and down completely randomly.

Pair Corralation between Petrleo Brasileiro and Chevron Corp

Assuming the 90 days horizon Petrleo Brasileiro SA is expected to generate 1.94 times more return on investment than Chevron Corp. However, Petrleo Brasileiro is 1.94 times more volatile than Chevron Corp. It trades about 0.28 of its potential returns per unit of risk. Chevron Corp is currently generating about 0.26 per unit of risk. If you would invest  1,489  in Petrleo Brasileiro SA on January 30, 2024 and sell it today you would earn a total of  127.00  from holding Petrleo Brasileiro SA or generate 8.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Petrleo Brasileiro SA  vs.  Chevron Corp

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. Despite somewhat strong basic indicators, Petrleo Brasileiro is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Chevron Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Chevron Corp may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Petrleo Brasileiro and Chevron Corp

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

The idea behind Petrleo Brasileiro SA and Chevron Corp 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.