Correlation Between Galp Energia and EDP Energias

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

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

Diversification Opportunities for Galp Energia and EDP Energias

-0.09

Correlation Coefficient

Galp Energia  EDP Energias

Good diversification

The 3 months correlation between Galp and EDP is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energia SGPS and EDP Energias in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Energias and Galp Energia 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 Galp Energia SGPS are associated (or correlated) with EDP Energias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Energias has no effect on the direction of Galp Energia i.e., Galp Energia and EDP Energias go up and down completely randomly.

Pair Corralation between Galp Energia and EDP Energias

Assuming the 90 days trading horizon Galp Energia SGPS is expected to under-perform the EDP Energias. In addition to that, Galp Energia is 1.01 times more volatile than EDP Energias. It trades about -0.02 of its total potential returns per unit of risk. EDP Energias is currently generating about 0.03 per unit of volatility. 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

Galp Energia SGPS  vs.  EDP Energias

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.

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.

Pair Trading with Galp Energia and EDP Energias

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

The idea behind Galp Energia SGPS and EDP Energias 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.