Correlation Between Galp Energa and Equinor ASA

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

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

Diversification Opportunities for Galp Energa and Equinor ASA

0.3

Correlation Coefficient

Galp Energa  Equinor ASA

Weak diversification

The 3 months correlation between Galp and Equinor is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energa and Equinor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA ADR and Galp Energa 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 Energa are associated (or correlated) with Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA ADR has no effect on the direction of Galp Energa i.e., Galp Energa and Equinor ASA go up and down completely randomly.

Pair Corralation between Galp Energa and Equinor ASA

Assuming the 90 days horizon Galp Energa is expected to generate 4.18 times more return on investment than Equinor ASA. However, Galp Energa is 4.18 times more volatile than Equinor ASA ADR. It trades about 0.26 of its potential returns per unit of risk. Equinor ASA ADR is currently generating about -0.11 per unit of risk. If you would invest  827.00  in Galp Energa on February 1, 2024 and sell it today you would earn a total of  243.00  from holding Galp Energa or generate 29.38% return on investment over 90 days.

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

Galp Energa  vs.  Equinor ASA ADR

Galp Energa

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Galp Energa are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Galp Energa showed solid returns over the last few months and may actually be approaching a breakup point.

Equinor ASA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equinor ASA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Galp Energa and Equinor ASA

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

The idea behind Galp Energa and Equinor ASA ADR 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.