Correlation Between Galp Energa and Eni SPA

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

By analyzing existing cross correlation between Galp Energa and Eni SpA ADR, you can compare the effects of market volatilities on Galp Energa and Eni SPA 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 Energa with a short position of Eni SPA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Galp Energa and Eni SPA.

Diversification Opportunities for Galp Energa and Eni SPA

-0.37

Correlation Coefficient

Galp Energa  Eni SPA

Very good diversification

The 3 months correlation between Galp and Eni is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energa and Eni SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eni SpA ADR and Galp Energa 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 Energa are associated (or correlated) with Eni SPA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eni SpA ADR has no effect on the direction of Galp Energa i.e., Galp Energa and Eni SPA go up and down completely randomly.

Pair Corralation between Galp Energa and Eni SPA

Assuming the 90 days horizon Galp Energa is expected to under-perform the Eni SPA. In addition to that, Galp Energa is 1.83 times more volatile than Eni SpA ADR. It trades about -0.03 of its total potential returns per unit of risk. Eni SpA ADR is currently generating about 0.23 per unit of volatility. If you would invest  2,661  in Eni SpA ADR on December 26, 2024 and sell it today you would earn a total of  418.00  from holding Eni SpA ADR or generate 15.71% return on investment over 90 days.

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

Galp Energa  vs.  Eni SpA ADR

Galp Energa

Risk-Adjusted Performance

Very Weak

Over the last 90 days Galp Energa has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Galp Energa is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Eni SpA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eni SpA ADR are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Eni SPA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Galp Energa and Eni SPA

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

The idea behind Galp Energa and Eni SpA 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.