Correlation Between Galp Energia and Insurance Australia

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

Diversification Opportunities for Galp Energia and Insurance Australia

-0.55

Correlation Coefficient

Galp Energia  Insurance Australia

Excellent diversification

The 3 months correlation between Galp and Insurance is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energia SGPS and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia 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 Insurance Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insurance Australia has no effect on the direction of Galp Energia i.e., Galp Energia and Insurance Australia go up and down completely randomly.

Pair Corralation between Galp Energia and Insurance Australia

Assuming the 90 days horizon Galp Energia SGPS is expected to generate 0.54 times more return on investment than Insurance Australia. However, Galp Energia SGPS is 1.84 times less risky than Insurance Australia. It trades about 0.3 of its potential returns per unit of risk. Insurance Australia Group is currently generating about 0.05 per unit of risk. If you would invest  1,556  in Galp Energia SGPS on September 18, 2024 and sell it today you would earn a total of  125.00  from holding Galp Energia SGPS or generate 8.03% return on investment over 90 days.

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

Galp Energia SGPS  vs.  Insurance Australia Group

Galp Energia SGPS

Risk-Adjusted Performance

0 of 100

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 basic indicators, Galp Energia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Insurance Australia

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Insurance Australia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Galp Energia and Insurance Australia

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

The idea behind Galp Energia SGPS and Insurance Australia Group 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 Global Correlations module to find global opportunities by holding instruments from different markets.