Correlation Between Eni SPA and Petroleo Brasileiro

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

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

Diversification Opportunities for Eni SPA and Petroleo Brasileiro

-0.34

Correlation Coefficient

Eni SPA  Petroleo Brasileiro

Very good diversification

The 3 months correlation between Eni and Petroleo is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Eni SpA 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 Eni SPA 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 Eni SpA 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 Eni SPA i.e., Eni SPA and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between Eni SPA and Petroleo Brasileiro

Taking into account the 90-day investment horizon Eni SPA is expected to generate 4.57 times less return on investment than Petroleo Brasileiro. But when comparing it to its historical volatility, Eni SpA ADR is 1.55 times less risky than Petroleo Brasileiro. It trades about 0.13 of its potential returns per unit of risk. Petroleo Brasileiro Petrobras is currently generating about 0.39 of returns per unit of risk over similar time horizon. 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

Eni SpA ADR  vs.  Petroleo Brasileiro Petrobras

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.

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.

Pair Trading with Eni SPA and Petroleo Brasileiro

The main advantage of trading using opposite Eni SPA and Petroleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eni SPA 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 Eni SpA 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.

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 the Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.