Correlation Between Alcoa Corp and Galp Energia

Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and Galp Energia 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 Alcoa Corp and Galp Energia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alcoa Corp and Galp Energia SGPS, you can compare the effects of market volatilities on Alcoa Corp and Galp Energia 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 Alcoa Corp with a short position of Galp Energia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and Galp Energia.

Diversification Opportunities for Alcoa Corp and Galp Energia

0.35

Correlation Coefficient

Alcoa Corp  Galp Energia

Weak diversification

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

Pair Corralation between Alcoa Corp and Galp Energia

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Galp Energia. But the stock apears to be less risky and, when comparing its historical volatility, Alcoa Corp is 1.25 times less risky than Galp Energia. The stock trades about -0.07 of its potential returns per unit of risk. The Galp Energia SGPS is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,720  in Galp Energia SGPS on December 26, 2024 and sell it today you would earn a total of  32.00  from holding Galp Energia SGPS or generate 1.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Alcoa Corp  vs.  Galp Energia SGPS

Alcoa Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alcoa Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Galp Energia SGPS

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Galp Energia SGPS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Galp Energia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alcoa Corp and Galp Energia

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

The idea behind Alcoa Corp and Galp Energia SGPS 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.