Correlation Between NYSE Composite and Galp Energia

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

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

Diversification Opportunities for NYSE Composite and Galp Energia

-0.06

Correlation Coefficient

NYSE Composite  Galp Energia

Good diversification

The 3 months correlation between NYSE and Galp is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite 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 NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Galp Energia go up and down completely randomly.

Pair Corralation between NYSE Composite and Galp Energia

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.04 times less return on investment than Galp Energia. But when comparing it to its historical volatility, NYSE Composite is 4.39 times less risky than Galp Energia. It trades about 0.02 of its potential returns per unit of risk. Galp Energia SGPS is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,673  in Galp Energia SGPS on December 29, 2024 and sell it today you would lose (23.00) from holding Galp Energia SGPS or give up 1.37% of portfolio value over 90 days.

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

NYSE Composite  vs.  Galp Energia SGPS

Pair Trading with NYSE Composite and Galp Energia

The main advantage of trading using opposite NYSE Composite and Galp Energia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.