Correlation Between Galp Energa and TotalEnergies

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

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

Diversification Opportunities for Galp Energa and TotalEnergies

-0.27

Correlation Coefficient

Galp Energa  TotalEnergies

Very good diversification

The 3 months correlation between Galp and TotalEnergies is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energa and TotalEnergies SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TotalEnergies SE 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 TotalEnergies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TotalEnergies SE has no effect on the direction of Galp Energa i.e., Galp Energa and TotalEnergies go up and down completely randomly.

Pair Corralation between Galp Energa and TotalEnergies

Assuming the 90 days horizon Galp Energa is expected to generate 14.55 times less return on investment than TotalEnergies. In addition to that, Galp Energa is 1.26 times more volatile than TotalEnergies SE. It trades about 0.01 of its total potential returns per unit of risk. TotalEnergies SE is currently generating about 0.21 per unit of volatility. If you would invest  5,290  in TotalEnergies SE on December 30, 2024 and sell it today you would earn a total of  1,141  from holding TotalEnergies SE or generate 21.57% 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.  TotalEnergies SE

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.

TotalEnergies SE

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TotalEnergies SE are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TotalEnergies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Galp Energa and TotalEnergies

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

The idea behind Galp Energa and TotalEnergies SE 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.