Correlation Between Galp Energia and Nordic Semiconductor

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

Diversification Opportunities for Galp Energia and Nordic Semiconductor

0.42

Correlation Coefficient

Galp Energia  Nordic Semiconductor

Very weak diversification

The 3 months correlation between Galp and Nordic is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energia SGPS and Nordic Semiconductor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordic Semiconductor 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 Nordic Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordic Semiconductor ASA has no effect on the direction of Galp Energia i.e., Galp Energia and Nordic Semiconductor go up and down completely randomly.

Pair Corralation between Galp Energia and Nordic Semiconductor

Assuming the 90 days horizon Galp Energia SGPS is expected to generate 0.42 times more return on investment than Nordic Semiconductor. However, Galp Energia SGPS is 2.4 times less risky than Nordic Semiconductor. It trades about -0.02 of its potential returns per unit of risk. Nordic Semiconductor ASA is currently generating about -0.1 per unit of risk. If you would invest  1,745  in Galp Energia SGPS on September 19, 2024 and sell it today you would lose (49.00) from holding Galp Energia SGPS or give up 2.81% of portfolio value over 90 days.

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

Galp Energia SGPS  vs.  Nordic Semiconductor 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 basic indicators, Galp Energia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Nordic Semiconductor ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nordic Semiconductor ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Galp Energia and Nordic Semiconductor

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

The idea behind Galp Energia SGPS and Nordic Semiconductor 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.