Correlation Between Galp Energia and Mota Engil

Can any of the company-specific risk be diversified away by investing in both Galp Energia and Mota Engil 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 Mota Engil 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 Mota Engil SGPS SA, you can compare the effects of market volatilities on Galp Energia and Mota Engil 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 Mota Engil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Galp Energia and Mota Engil.

Diversification Opportunities for Galp Energia and Mota Engil

-0.43

Correlation Coefficient

Galp Energia  Mota Engil

Very good diversification

The 3 months correlation between Galp and Mota is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energia SGPS and Mota Engil SGPS SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mota Engil SGPS 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 Mota Engil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mota Engil SGPS has no effect on the direction of Galp Energia i.e., Galp Energia and Mota Engil go up and down completely randomly.

Pair Corralation between Galp Energia and Mota Engil

Assuming the 90 days trading horizon Galp Energia SGPS is expected to under-perform the Mota Engil. But the stock apears to be less risky and, when comparing its historical volatility, Galp Energia SGPS is 1.65 times less risky than Mota Engil. The stock trades about -0.02 of its potential returns per unit of risk. The Mota Engil SGPS SA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  291.00  in Mota Engil SGPS SA on December 29, 2024 and sell it today you would earn a total of  60.00  from holding Mota Engil SGPS SA or generate 20.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Galp Energia SGPS  vs.  Mota Engil SGPS SA

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.

Mota Engil SGPS

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mota Engil SGPS SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Mota Engil unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Galp Energia and Mota Engil

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

The idea behind Galp Energia SGPS and Mota Engil SGPS 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.