Correlation Between Petroleo Brasileiro and OSE All

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Can any of the company-specific risk be diversified away by investing in both Petroleo Brasileiro and OSE All 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 OSE All into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Petroleo Brasileiro SA and OSE All, you can compare the effects of market volatilities on Petroleo Brasileiro and OSE All 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 OSE All. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petroleo Brasileiro and OSE All.

Diversification Opportunities for Petroleo Brasileiro and OSE All

-0.09
  Correlation Coefficient

Good diversification

The 3 months correlation between Petroleo and OSEAX is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro SA and OSE All in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OSE All 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 SA are associated (or correlated) with OSE All. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OSE All has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and OSE All go up and down completely randomly.
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Pair Corralation between Petroleo Brasileiro and OSE All

Considering the 90-day investment horizon Petroleo Brasileiro SA is expected to under-perform the OSE All. But the stock apears to be less risky and, when comparing its historical volatility, Petroleo Brasileiro SA is 2.75 times less risky than OSE All. The stock trades about -0.02 of its potential returns per unit of risk. The OSE All is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  109,068  in OSE All on September 1, 2022 and sell it today you would lose (7,331)  from holding OSE All or give up 6.72% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Petroleo Brasileiro SA  vs.  OSE All

 Performance (%) 
       Timeline  

Petroleo Brasileiro and OSE All Volatility Contrast

   Predicted Return Density   
       Returns  

OSE All

Pair trading matchups for OSE All

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against OSE All as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. OSE All's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, OSE All's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to OSE All.

Pair Trading with Petroleo Brasileiro and OSE All

The main advantage of trading using opposite Petroleo Brasileiro and OSE All positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Petroleo Brasileiro position performs unexpectedly, OSE All 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 OSE All will offset losses from the drop in OSE All's long position.
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The idea behind Petroleo Brasileiro SA and OSE All 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against OSE All as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. OSE All's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, OSE All's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to OSE All.
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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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