Correlation Between National Fuel and Galp Energa

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

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

Diversification Opportunities for National Fuel and Galp Energa

-0.51

Correlation Coefficient

National Fuel  Galp Energa

Excellent diversification

The 3 months correlation between National and Galp is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding National Fuel Gas and Galp Energa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galp Energa and National Fuel 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 National Fuel Gas are associated (or correlated) with Galp Energa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galp Energa has no effect on the direction of National Fuel i.e., National Fuel and Galp Energa go up and down completely randomly.

Pair Corralation between National Fuel and Galp Energa

Considering the 90-day investment horizon National Fuel Gas is expected to generate 0.79 times more return on investment than Galp Energa. However, National Fuel Gas is 1.26 times less risky than Galp Energa. It trades about 0.17 of its potential returns per unit of risk. Galp Energa is currently generating about -0.08 per unit of risk. If you would invest  5,833  in National Fuel Gas on December 4, 2024 and sell it today you would earn a total of  1,701  from holding National Fuel Gas or generate 29.16% return on investment over 90 days.

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

National Fuel Gas  vs.  Galp Energa

National Fuel Gas

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Fuel Gas are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, National Fuel reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with National Fuel and Galp Energa

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

The idea behind National Fuel Gas and Galp Energa 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.