Correlation Between Galp Energia and REN Redes

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

Diversification Opportunities for Galp Energia and REN Redes

-0.68

Correlation Coefficient

Galp Energia  REN Redes

Excellent diversification

The 3 months correlation between Galp and REN is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energia SGPS and REN Redes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REN Redes 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 REN Redes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REN Redes has no effect on the direction of Galp Energia i.e., Galp Energia and REN Redes go up and down completely randomly.

Pair Corralation between Galp Energia and REN Redes

Assuming the 90 days trading horizon Galp Energia SGPS is expected to under-perform the REN Redes. In addition to that, Galp Energia is 1.59 times more volatile than REN Redes. It trades about -0.02 of its total potential returns per unit of risk. REN Redes is currently generating about 0.26 per unit of volatility. If you would invest  227.00  in REN Redes on December 29, 2024 and sell it today you would earn a total of  47.00  from holding REN Redes or generate 20.7% return on investment over 90 days.

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

Galp Energia SGPS  vs.  REN Redes

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.

REN Redes

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in REN Redes are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, REN Redes unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Galp Energia and REN Redes

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

The idea behind Galp Energia SGPS and REN Redes 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.