Correlation Between Petroleo Brasileiro and IG Petrochemicals

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

Diversification Opportunities for Petroleo Brasileiro and IG Petrochemicals

0.22

Correlation Coefficient

Petroleo Brasileiro  IG Petrochemicals

Modest diversification

The 3 months correlation between Petroleo and IGPL is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and IG Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IG Petrochemicals 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 IG Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IG Petrochemicals has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and IG Petrochemicals go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and IG Petrochemicals

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the IG Petrochemicals. But the stock apears to be less risky and, when comparing its historical volatility, Petroleo Brasileiro Petrobras is 1.55 times less risky than IG Petrochemicals. The stock trades about -0.24 of its potential returns per unit of risk. The IG Petrochemicals Limited is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  55,940  in IG Petrochemicals Limited on September 24, 2024 and sell it today you would lose (460.00) from holding IG Petrochemicals Limited or give up 0.82% of portfolio value over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  IG Petrochemicals Limited

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 latest unsteady performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

IG Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IG Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IG Petrochemicals is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Petroleo Brasileiro and IG Petrochemicals

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

The idea behind Petroleo Brasileiro Petrobras and IG Petrochemicals Limited 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.