Correlation Between Bank Central and Galp Energia

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

By analyzing existing cross correlation between Bank Central Asia and Galp Energia SGPS, you can compare the effects of market volatilities on Bank Central and Galp Energia 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 Bank Central with a short position of Galp Energia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Central and Galp Energia.

Diversification Opportunities for Bank Central and Galp Energia

0.69

Correlation Coefficient

Bank Central  Galp Energia

Poor diversification

The 3 months correlation between Bank and Galp is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bank Central Asia and Galp Energia SGPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galp Energia SGPS and Bank Central 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 Bank Central Asia are associated (or correlated) with Galp Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galp Energia SGPS has no effect on the direction of Bank Central i.e., Bank Central and Galp Energia go up and down completely randomly.

Pair Corralation between Bank Central and Galp Energia

Assuming the 90 days horizon Bank Central Asia is expected to under-perform the Galp Energia. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bank Central Asia is 1.42 times less risky than Galp Energia. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Galp Energia SGPS is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,883  in Galp Energia SGPS on September 16, 2024 and sell it today you would lose (107.00) from holding Galp Energia SGPS or give up 5.68% of portfolio value over 90 days.

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

Bank Central Asia  vs.  Galp Energia SGPS

Bank Central Asia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Central Asia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Bank Central is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 technical and fundamental indicators, Galp Energia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bank Central and Galp Energia

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

The idea behind Bank Central Asia and Galp Energia SGPS 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.