Correlation Between GALP ENERGIA and Microsoft

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

Diversification Opportunities for GALP ENERGIA and Microsoft

-0.36

Correlation Coefficient

GALP ENERGIA  Microsoft

Very good diversification

The 3 months correlation between GALP and Microsoft is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding GALP ENERGIA B and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of GALP ENERGIA i.e., GALP ENERGIA and Microsoft go up and down completely randomly.

Pair Corralation between GALP ENERGIA and Microsoft

Assuming the 90 days trading horizon GALP ENERGIA B is expected to under-perform the Microsoft. But the stock apears to be less risky and, when comparing its historical volatility, GALP ENERGIA B is 1.09 times less risky than Microsoft. The stock trades about -0.04 of its potential returns per unit of risk. The Microsoft is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  38,992  in Microsoft on September 17, 2024 and sell it today you would earn a total of  3,923  from holding Microsoft or generate 10.06% return on investment over 90 days.

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

GALP ENERGIA B   vs.  Microsoft

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.

Microsoft

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with GALP ENERGIA and Microsoft

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

The idea behind GALP ENERGIA B and Microsoft 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.