Correlation Between Visa and GALP ENERGIA

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

By analyzing existing cross correlation between Visa Class A and GALP ENERGIA B , you can compare the effects of market volatilities on Visa 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 Visa with a short position of GALP ENERGIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and GALP ENERGIA.

Diversification Opportunities for Visa and GALP ENERGIA

-0.7

Correlation Coefficient

Visa  GALP ENERGIA

Excellent diversification

The 3 months correlation between Visa and GALP is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and GALP ENERGIA B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GALP ENERGIA B and Visa 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 Visa Class A 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 B has no effect on the direction of Visa i.e., Visa and GALP ENERGIA go up and down completely randomly.

Pair Corralation between Visa and GALP ENERGIA

Taking into account the 90-day investment horizon Visa is expected to generate 9.94 times less return on investment than GALP ENERGIA. But when comparing it to its historical volatility, Visa Class A is 1.65 times less risky than GALP ENERGIA. It trades about 0.04 of its potential returns per unit of risk. GALP ENERGIA B is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,547  in GALP ENERGIA B on October 1, 2024 and sell it today you would earn a total of  100.00  from holding GALP ENERGIA B or generate 6.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.0%
Values	Daily Returns

Visa Class A  vs.  GALP ENERGIA B

Visa Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Visa and GALP ENERGIA

The main advantage of trading using opposite Visa and GALP ENERGIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A and GALP ENERGIA B 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.