Correlation Between Galp Energia and Equinor ASA

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

Diversification Opportunities for Galp Energia and Equinor ASA

0.16

Correlation Coefficient

Galp Energia  Equinor ASA

Average diversification

The 3 months correlation between Galp and Equinor is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energia SGPS and Equinor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA ADR 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 Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA ADR has no effect on the direction of Galp Energia i.e., Galp Energia and Equinor ASA go up and down completely randomly.

Pair Corralation between Galp Energia and Equinor ASA

Assuming the 90 days horizon Galp Energia is expected to generate 5.52 times less return on investment than Equinor ASA. In addition to that, Galp Energia is 1.79 times more volatile than Equinor ASA ADR. It trades about 0.01 of its total potential returns per unit of risk. Equinor ASA ADR is currently generating about 0.11 per unit of volatility. If you would invest  2,297  in Equinor ASA ADR on December 28, 2024 and sell it today you would earn a total of  306.00  from holding Equinor ASA ADR or generate 13.32% return on investment over 90 days.

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

Galp Energia SGPS  vs.  Equinor ASA ADR

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. 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.

Equinor ASA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equinor ASA ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Equinor ASA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Galp Energia and Equinor ASA

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

The idea behind Galp Energia SGPS and Equinor ASA ADR 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..