Correlation Between Origin Energy and Galp Energa

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

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

Diversification Opportunities for Origin Energy and Galp Energa

0.24

Correlation Coefficient

Origin Energy  Galp Energa

Modest diversification

The 3 months correlation between Origin and Galp is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Origin Energy Ltd and Galp Energa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galp Energa and Origin Energy 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 Origin Energy Ltd 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 Origin Energy i.e., Origin Energy and Galp Energa go up and down completely randomly.

Pair Corralation between Origin Energy and Galp Energa

Assuming the 90 days horizon Origin Energy Ltd is expected to under-perform the Galp Energa. In addition to that, Origin Energy is 1.16 times more volatile than Galp Energa. It trades about -0.01 of its total potential returns per unit of risk. Galp Energa is currently generating about 0.0 per unit of volatility. If you would invest  859.00  in Galp Energa on December 21, 2024 and sell it today you would lose (6.00) from holding Galp Energa or give up 0.7% of portfolio value over 90 days.

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

Origin Energy Ltd  vs.  Galp Energa

Origin Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Origin Energy Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Origin Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 Origin Energy and Galp Energa

The main advantage of trading using opposite Origin Energy and Galp Energa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Origin Energy 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 Origin Energy Ltd 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.