Correlation Between Equinor ASA and Galp Energa

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

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

Diversification Opportunities for Equinor ASA and Galp Energa

0.1

Correlation Coefficient

Equinor ASA  Galp Energa

Average diversification

The 3 months correlation between Equinor and Galp is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA and Galp Energa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galp Energa and Equinor ASA 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 Equinor ASA 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 Equinor ASA i.e., Equinor ASA and Galp Energa go up and down completely randomly.

Pair Corralation between Equinor ASA and Galp Energa

Assuming the 90 days horizon Equinor ASA is expected to generate 1.16 times more return on investment than Galp Energa. However, Equinor ASA is 1.16 times more volatile than Galp Energa. It trades about 0.12 of its potential returns per unit of risk. Galp Energa is currently generating about -0.03 per unit of risk. If you would invest  2,235  in Equinor ASA on December 26, 2024 and sell it today you would earn a total of  345.00  from holding Equinor ASA or generate 15.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

Equinor ASA  vs.  Galp Energa

Equinor ASA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equinor ASA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Equinor ASA 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 Equinor ASA and Galp Energa

The main advantage of trading using opposite Equinor ASA and Galp Energa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equinor ASA 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 Equinor ASA 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.