Correlation Between Exxon and Galp Energa

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

By analyzing existing cross correlation between Exxon Mobil Corp and Galp Energa, you can compare the effects of market volatilities on Exxon and Galp Energa 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 Exxon with a short position of Galp Energa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Galp Energa.

Diversification Opportunities for Exxon and Galp Energa

-0.21

Correlation Coefficient

Exxon  Galp Energa

Very good diversification

The 3 months correlation between Exxon and Galp is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Galp Energa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galp Energa and Exxon 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 Exxon Mobil Corp are associated (or correlated) with Galp Energa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galp Energa has no effect on the direction of Exxon i.e., Exxon and Galp Energa go up and down completely randomly.

Pair Corralation between Exxon and Galp Energa

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.8 times more return on investment than Galp Energa. However, Exxon Mobil Corp is 1.25 times less risky than Galp Energa. It trades about -0.05 of its potential returns per unit of risk. Galp Energa is currently generating about -0.04 per unit of risk. If you would invest  11,325  in Exxon Mobil Corp on September 17, 2024 and sell it today you would lose (505.50) from holding Exxon Mobil Corp or give up 4.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Exxon Mobil Corp  vs.  Galp Energa

Exxon Mobil Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exxon Mobil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Exxon is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Galp Energa

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Exxon and Galp Energa

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

The idea behind Exxon Mobil Corp and Galp Energa 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.