Correlation Between Equinor ASA and Petroleo Brasileiro

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

By analyzing existing cross correlation between Equinor ASA ADR and Petroleo Brasileiro Petrobras, you can compare the effects of market volatilities on Equinor ASA and Petroleo Brasileiro 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 Equinor ASA with a short position of Petroleo Brasileiro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equinor ASA and Petroleo Brasileiro.

Diversification Opportunities for Equinor ASA and Petroleo Brasileiro

0.76

Correlation Coefficient

Equinor ASA  Petroleo Brasileiro

Poor diversification

The 3 months correlation between Equinor and Petroleo is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA ADR and Petroleo Brasileiro Petrobras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro and Equinor ASA 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 Equinor ASA ADR are associated (or correlated) with Petroleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petroleo Brasileiro has no effect on the direction of Equinor ASA i.e., Equinor ASA and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between Equinor ASA and Petroleo Brasileiro

Given the investment horizon of 90 days Equinor ASA ADR is expected to under-perform the Petroleo Brasileiro. But the stock apears to be less risky and, when comparing its historical volatility, Equinor ASA ADR is 1.08 times less risky than Petroleo Brasileiro. The stock trades about -0.01 of its potential returns per unit of risk. The Petroleo Brasileiro Petrobras is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,358  in Petroleo Brasileiro Petrobras on September 16, 2024 and sell it today you would earn a total of  3.00  from holding Petroleo Brasileiro Petrobras or generate 0.22% return on investment over 90 days.

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

Equinor ASA ADR  vs.  Petroleo Brasileiro Petrobras

Equinor ASA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equinor ASA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Equinor ASA is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Petroleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petroleo Brasileiro Petrobras has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Equinor ASA and Petroleo Brasileiro

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

The idea behind Equinor ASA ADR and Petroleo Brasileiro Petrobras 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.