Correlation Between Galp Energia and INFORMATION SVC

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

Diversification Opportunities for Galp Energia and INFORMATION SVC

-0.38

Correlation Coefficient

Galp Energia  INFORMATION SVC

Very good diversification

The 3 months correlation between Galp and INFORMATION is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energia SGPS and INFORMATION SVC GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INFORMATION SVC GRP 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 INFORMATION SVC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INFORMATION SVC GRP has no effect on the direction of Galp Energia i.e., Galp Energia and INFORMATION SVC go up and down completely randomly.

Pair Corralation between Galp Energia and INFORMATION SVC

Assuming the 90 days horizon Galp Energia SGPS is expected to generate 0.89 times more return on investment than INFORMATION SVC. However, Galp Energia SGPS is 1.13 times less risky than INFORMATION SVC. It trades about -0.27 of its potential returns per unit of risk. INFORMATION SVC GRP is currently generating about -0.39 per unit of risk. If you would invest  1,660  in Galp Energia SGPS on October 10, 2024 and sell it today you would lose (102.00) from holding Galp Energia SGPS or give up 6.14% of portfolio value over 90 days.

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

Galp Energia SGPS  vs.  INFORMATION SVC GRP

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 latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

INFORMATION SVC GRP

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in INFORMATION SVC GRP are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, INFORMATION SVC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Galp Energia and INFORMATION SVC

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

The idea behind Galp Energia SGPS and INFORMATION SVC GRP 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.