Correlation Between Galp Energa and Galp Energia

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

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

Diversification Opportunities for Galp Energa and Galp Energia

0.66

Correlation Coefficient

Galp Energa  Galp Energia

Poor diversification

The 3 months correlation between Galp and Galp is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energa and Galp Energia SGPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galp Energia SGPS 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 Galp Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galp Energia SGPS has no effect on the direction of Galp Energa i.e., Galp Energa and Galp Energia go up and down completely randomly.

Pair Corralation between Galp Energa and Galp Energia

Assuming the 90 days horizon Galp Energa is expected to generate 4.66 times less return on investment than Galp Energia. But when comparing it to its historical volatility, Galp Energa is 1.82 times less risky than Galp Energia. It trades about 0.0 of its potential returns per unit of risk. Galp Energia SGPS is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,673  in Galp Energia SGPS on December 27, 2024 and sell it today you would lose (36.00) from holding Galp Energia SGPS or give up 2.15% of portfolio value over 90 days.

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

Galp Energa  vs.  Galp Energia SGPS

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.

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.

Pair Trading with Galp Energa and Galp Energia

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

The idea behind Galp Energa and Galp Energia SGPS 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.