Correlation Between Petrleo Brasileiro and Exxon

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

Diversification Opportunities for Petrleo Brasileiro and Exxon

-0.58

Correlation Coefficient

Petrleo Brasileiro  Exxon

Excellent diversification

The 3 months correlation between Petrleo and Exxon is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Exxon Mobil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil 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 Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil Corp has no effect on the direction of Petrleo Brasileiro i.e., Petrleo Brasileiro and Exxon go up and down completely randomly.

Pair Corralation between Petrleo Brasileiro and Exxon

Assuming the 90 days horizon Petrleo Brasileiro SA is expected to generate 1.55 times more return on investment than Exxon. However, Petrleo Brasileiro is 1.55 times more volatile than Exxon Mobil Corp. It trades about 0.08 of its potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.05 per unit of risk. If you would invest  640.00  in Petrleo Brasileiro SA on January 31, 2024 and sell it today you would earn a total of  1,001  from holding Petrleo Brasileiro SA or generate 156.41% return on investment over 90 days.

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

Petrleo Brasileiro SA  vs.  Exxon Mobil Corp

Petrleo Brasileiro

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Petrleo Brasileiro SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Exxon Mobil Corp

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Exxon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petrleo Brasileiro and Exxon

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

The idea behind Petrleo Brasileiro SA and Exxon Mobil 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.