Correlation Between Exxon and Petrleo Brasileiro

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

Diversification Opportunities for Exxon and Petrleo Brasileiro

-0.35
  Correlation Coefficient

Very good diversification

The 3 months correlation between Exxon and Petrleo is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrleo Brasileiro and Exxon 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 Exxon Mobil Corp are associated (or correlated) with Petrleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrleo Brasileiro has no effect on the direction of Exxon i.e., Exxon and Petrleo Brasileiro go up and down completely randomly.

Pair Corralation between Exxon and Petrleo Brasileiro

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.5 times more return on investment than Petrleo Brasileiro. However, Exxon Mobil Corp is 1.99 times less risky than Petrleo Brasileiro. It trades about 0.29 of its potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about 0.04 per unit of risk. If you would invest  10,205  in Exxon Mobil Corp on January 26, 2024 and sell it today you would earn a total of  1,900  from holding Exxon Mobil Corp or generate 18.62% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.39%
ValuesDaily Returns

Exxon Mobil Corp  vs.  Petrleo Brasileiro SA

 Performance 
       Timeline  
Exxon Mobil Corp 

Risk-Adjusted Performance

22 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Exxon displayed solid returns over the last few months and may actually be approaching a breakup point.
Petrleo Brasileiro 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Petrleo Brasileiro SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Petrleo Brasileiro is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Exxon and Petrleo Brasileiro Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Exxon and Petrleo Brasileiro

The main advantage of trading using opposite Exxon and Petrleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Petrleo 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 Petrleo Brasileiro will offset losses from the drop in Petrleo Brasileiro's long position.
The idea behind Exxon Mobil Corp and Petrleo Brasileiro SA 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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.

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