Correlation Between EDP Energias and Galp Energia

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

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

Diversification Opportunities for EDP Energias and Galp Energia

-0.09

Correlation Coefficient

EDP Energias  Galp Energia

Good diversification

The 3 months correlation between EDP and Galp is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias 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 EDP Energias 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 EDP Energias 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 EDP Energias i.e., EDP Energias and Galp Energia go up and down completely randomly.

Pair Corralation between EDP Energias and Galp Energia

Assuming the 90 days trading horizon EDP Energias is expected to generate 0.99 times more return on investment than Galp Energia. However, EDP Energias is 1.01 times less risky than Galp Energia. It trades about 0.03 of its potential returns per unit of risk. Galp Energia SGPS is currently generating about -0.02 per unit of risk. If you would invest  310.00  in EDP Energias on December 29, 2024 and sell it today you would earn a total of  8.00  from holding EDP Energias or generate 2.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

EDP Energias  vs.  Galp Energia SGPS

EDP Energias

Risk-Adjusted Performance

Weak

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

Galp Energia SGPS

Risk-Adjusted Performance

Very Weak

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

Pair Trading with EDP Energias and Galp Energia

The main advantage of trading using opposite EDP Energias and Galp Energia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EDP Energias 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 EDP Energias 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.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.