Correlation Between Galp Energa and Petrleo Brasileiro

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

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

Diversification Opportunities for Galp Energa and Petrleo Brasileiro

0.46

Correlation Coefficient

Galp Energa  Petrleo Brasileiro

Very weak diversification

The 3 months correlation between Galp and Petrleo is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energa and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrleo Brasileiro and Galp Energa 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 Energa are associated (or correlated) with Petrleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrleo Brasileiro has no effect on the direction of Galp Energa i.e., Galp Energa and Petrleo Brasileiro go up and down completely randomly.

Pair Corralation between Galp Energa and Petrleo Brasileiro

Assuming the 90 days horizon Galp Energa is expected to generate 0.95 times more return on investment than Petrleo Brasileiro. However, Galp Energa is 1.05 times less risky than Petrleo Brasileiro. It trades about -0.04 of its potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about -0.07 per unit of risk. If you would invest  937.00  in Galp Energa on September 17, 2024 and sell it today you would lose (47.00) from holding Galp Energa or give up 5.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Galp Energa  vs.  Petrleo Brasileiro SA

Galp Energa

Risk-Adjusted Performance

0 of 100

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.

Petrleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrleo Brasileiro SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Galp Energa and Petrleo Brasileiro

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

The idea behind Galp Energa and Petrleo Brasileiro SA 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.