Correlation Between Petróleo Brasileiro and Cenovus Energy

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

Diversification Opportunities for Petróleo Brasileiro and Cenovus Energy

0.76

Correlation Coefficient

Petróleo Brasileiro  Cenovus Energy

Poor diversification

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

Pair Corralation between Petróleo Brasileiro and Cenovus Energy

Assuming the 90 days horizon Petrleo Brasileiro SA is expected to generate 0.73 times more return on investment than Cenovus Energy. However, Petrleo Brasileiro SA is 1.38 times less risky than Cenovus Energy. It trades about 0.01 of its potential returns per unit of risk. Cenovus Energy is currently generating about -0.07 per unit of risk. If you would invest  1,307  in Petrleo Brasileiro SA on August 21, 2024 and sell it today you would earn a total of  2.00  from holding Petrleo Brasileiro SA or generate 0.15% return on investment over 90 days.

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

Petrleo Brasileiro SA  vs.  Cenovus Energy

Petróleo 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, Petróleo Brasileiro is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Cenovus Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cenovus Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Petróleo Brasileiro and Cenovus Energy

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

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