Correlation Between GALP ENERGIA and Spirent Communications

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

By analyzing existing cross correlation between GALP ENERGIA B and Spirent Communications plc, you can compare the effects of market volatilities on GALP ENERGIA and Spirent Communications 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 Spirent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of GALP ENERGIA and Spirent Communications.

Diversification Opportunities for GALP ENERGIA and Spirent Communications

0.04

Correlation Coefficient

GALP ENERGIA  Spirent Communications

Significant diversification

The 3 months correlation between GALP and Spirent is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding GALP ENERGIA B and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications 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 B are associated (or correlated) with Spirent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirent Communications has no effect on the direction of GALP ENERGIA i.e., GALP ENERGIA and Spirent Communications go up and down completely randomly.

Pair Corralation between GALP ENERGIA and Spirent Communications

Assuming the 90 days trading horizon GALP ENERGIA B is expected to under-perform the Spirent Communications. In addition to that, GALP ENERGIA is 1.67 times more volatile than Spirent Communications plc. It trades about -0.04 of its total potential returns per unit of risk. Spirent Communications plc is currently generating about 0.1 per unit of volatility. If you would invest  202.00  in Spirent Communications plc on September 22, 2024 and sell it today you would earn a total of  14.00  from holding Spirent Communications plc or generate 6.93% return on investment over 90 days.

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

GALP ENERGIA B   vs.  Spirent Communications plc

GALP ENERGIA B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GALP ENERGIA B has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, GALP ENERGIA is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Spirent Communications

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GALP ENERGIA and Spirent Communications

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

The idea behind GALP ENERGIA B and Spirent Communications 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.