Correlation Between APA and Naturgy Energy

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

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

Diversification Opportunities for APA and Naturgy Energy

0.38

Correlation Coefficient

APA  Naturgy Energy

Weak diversification

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

Pair Corralation between APA and Naturgy Energy

Assuming the 90 days horizon APA is expected to generate 3.04 times less return on investment than Naturgy Energy. In addition to that, APA is 1.57 times more volatile than Naturgy Energy Group. It trades about 0.01 of its total potential returns per unit of risk. Naturgy Energy Group is currently generating about 0.04 per unit of volatility. If you would invest  2,358  in Naturgy Energy Group on October 11, 2024 and sell it today you would earn a total of  14.00  from holding Naturgy Energy Group or generate 0.59% return on investment over 90 days.

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

APA Group  vs.  Naturgy Energy Group

APA Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APA Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, APA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Naturgy Energy Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Naturgy Energy Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Naturgy Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with APA and Naturgy Energy

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

The idea behind APA Group and Naturgy Energy Group 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.