Correlation Between Galp Energia and BP Plc

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

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

Diversification Opportunities for Galp Energia and BP Plc

0.68

Correlation Coefficient

Galp Energia  BP Plc

Poor diversification

The 3 months correlation between Galp and BPAQF is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energia SGPS and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and Galp Energia 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 Galp Energia SGPS are associated (or correlated) with BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Galp Energia i.e., Galp Energia and BP Plc go up and down completely randomly.

Pair Corralation between Galp Energia and BP Plc

Assuming the 90 days horizon Galp Energia SGPS is expected to under-perform the BP Plc. In addition to that, Galp Energia is 1.15 times more volatile than BP plc. It trades about -0.05 of its total potential returns per unit of risk. BP plc is currently generating about -0.04 per unit of volatility. If you would invest  524.00  in BP plc on September 15, 2024 and sell it today you would lose (32.00) from holding BP plc or give up 6.11% of portfolio value over 90 days.

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

Galp Energia SGPS  vs.  BP plc

Galp Energia SGPS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Galp Energia SGPS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

BP plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Galp Energia and BP Plc

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

The idea behind Galp Energia SGPS and BP plc 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.