Correlation Between GALP ENERGIA and Xenia Hotels

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

Diversification Opportunities for GALP ENERGIA and Xenia Hotels

-0.52

Correlation Coefficient

GALP ENERGIA  Xenia Hotels

Excellent diversification

The 3 months correlation between GALP and Xenia is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding GALP ENERGIA B and Xenia Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xenia Hotels Resorts 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 Xenia Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xenia Hotels Resorts has no effect on the direction of GALP ENERGIA i.e., GALP ENERGIA and Xenia Hotels go up and down completely randomly.

Pair Corralation between GALP ENERGIA and Xenia Hotels

Assuming the 90 days trading horizon GALP ENERGIA is expected to generate 1.25 times less return on investment than Xenia Hotels. But when comparing it to its historical volatility, GALP ENERGIA B is 1.61 times less risky than Xenia Hotels. It trades about 0.33 of its potential returns per unit of risk. Xenia Hotels Resorts is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,380  in Xenia Hotels Resorts on September 17, 2024 and sell it today you would earn a total of  140.00  from holding Xenia Hotels Resorts or generate 10.14% return on investment over 90 days.

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

GALP ENERGIA B   vs.  Xenia Hotels Resorts

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 comparatively stable basic indicators, GALP ENERGIA is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Xenia Hotels Resorts

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xenia Hotels Resorts are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Xenia Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GALP ENERGIA and Xenia Hotels

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

The idea behind GALP ENERGIA B and Xenia Hotels Resorts 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.