Correlation Between Galp Energia and Equinor ASA

Can any of the company-specific risk be diversified away by investing in both Galp Energia and Equinor ASA 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 Equinor ASA 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 Equinor ASA, you can compare the effects of market volatilities on Galp Energia and Equinor ASA 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 Equinor ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Galp Energia and Equinor ASA.

Diversification Opportunities for Galp Energia and Equinor ASA

0.48

Correlation Coefficient

Galp Energia  Equinor ASA

Very weak diversification

The 3 months correlation between Galp and Equinor is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energia SGPS and Equinor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA 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 Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA has no effect on the direction of Galp Energia i.e., Galp Energia and Equinor ASA go up and down completely randomly.

Pair Corralation between Galp Energia and Equinor ASA

Assuming the 90 days horizon Galp Energia SGPS is expected to generate 0.8 times more return on investment than Equinor ASA. However, Galp Energia SGPS is 1.26 times less risky than Equinor ASA. It trades about 0.04 of its potential returns per unit of risk. Equinor ASA is currently generating about 0.01 per unit of risk. If you would invest  1,265  in Galp Energia SGPS on September 16, 2024 and sell it today you would earn a total of  511.00  from holding Galp Energia SGPS or generate 40.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	76.43%
Values	Daily Returns

Galp Energia SGPS  vs.  Equinor ASA

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 nearly stable technical and fundamental indicators, Galp Energia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Equinor ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equinor ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Equinor ASA 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 Equinor ASA

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

The idea behind Galp Energia SGPS and Equinor ASA 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.