Correlation Between Petroleo Brasileiro and Eni SPA

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

By analyzing existing cross correlation between Petroleo Brasileiro Petrobras and Eni SpA ADR, you can compare the effects of market volatilities on Petroleo Brasileiro and Eni SPA 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 Eni SPA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petroleo Brasileiro and Eni SPA.

Diversification Opportunities for Petroleo Brasileiro and Eni SPA

-0.34

Correlation Coefficient

Petroleo Brasileiro  Eni SPA

Very good diversification

The 3 months correlation between Petroleo and Eni is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Eni SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eni SpA ADR 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 Petrobras are associated (or correlated) with Eni SPA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eni SpA ADR has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Eni SPA go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Eni SPA

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 1.55 times more return on investment than Eni SPA. However, Petroleo Brasileiro is 1.55 times more volatile than Eni SpA ADR. It trades about 0.38 of its potential returns per unit of risk. Eni SpA ADR is currently generating about 0.13 per unit of risk. If you would invest  1,485  in Petroleo Brasileiro Petrobras on January 30, 2024 and sell it today you would earn a total of  220.00  from holding Petroleo Brasileiro Petrobras or generate 14.81% return on investment over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  Eni SpA ADR

Petroleo Brasileiro

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro Petrobras are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Petroleo Brasileiro is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Eni SpA ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eni SpA ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Eni SPA is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Petroleo Brasileiro and Eni SPA

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

The idea behind Petroleo Brasileiro Petrobras and Eni SpA ADR 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.