Correlation Between KENNAMETAL INC and Galp Energia

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

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

Diversification Opportunities for KENNAMETAL INC and Galp Energia

-0.8

Correlation Coefficient

KENNAMETAL INC  Galp Energia

Pay attention - limited upside

The 3 months correlation between KENNAMETAL and Galp is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding KENNAMETAL INC 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 KENNAMETAL INC 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 KENNAMETAL INC 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 KENNAMETAL INC i.e., KENNAMETAL INC and Galp Energia go up and down completely randomly.

Pair Corralation between KENNAMETAL INC and Galp Energia

Assuming the 90 days trading horizon KENNAMETAL INC is expected to generate 1.37 times more return on investment than Galp Energia. However, KENNAMETAL INC is 1.37 times more volatile than Galp Energia SGPS. It trades about 0.05 of its potential returns per unit of risk. Galp Energia SGPS is currently generating about -0.04 per unit of risk. If you would invest  2,224  in KENNAMETAL INC on September 18, 2024 and sell it today you would earn a total of  296.00  from holding KENNAMETAL INC or generate 13.31% return on investment over 90 days.

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

KENNAMETAL INC  vs.  Galp Energia SGPS

KENNAMETAL INC

Risk-Adjusted Performance

5 of 100

Modest

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

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.

Pair Trading with KENNAMETAL INC and Galp Energia

The main advantage of trading using opposite KENNAMETAL INC and Galp Energia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KENNAMETAL INC 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 KENNAMETAL INC 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.