Correlation Between Galp Energa and BP Plc
Can any of the company-specific risk be diversified away by investing in both Galp Energa and BP Plc 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 BP Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Galp Energa and BP plc, you can compare the effects of market volatilities on Galp Energa and BP Plc 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 BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Galp Energa and BP Plc.
Diversification Opportunities for Galp Energa and BP Plc
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Galp and BPAQF is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energa and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc 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 BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Galp Energa i.e., Galp Energa and BP Plc go up and down completely randomly.
Pair Corralation between Galp Energa and BP Plc
Assuming the 90 days horizon Galp Energa is expected to generate 0.85 times more return on investment than BP Plc. However, Galp Energa is 1.17 times less risky than BP Plc. It trades about 0.03 of its potential returns per unit of risk. BP plc is currently generating about -0.02 per unit of risk. If you would invest 771.00 in Galp Energa on August 28, 2024 and sell it today you would earn a total of 55.00 from holding Galp Energa or generate 7.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Galp Energa vs. BP plc
Performance |
| Timeline |
| Galp Energa |
| BP plc |
Galp Energa and BP Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Galp Energa and BP Plc
The main advantage of trading using opposite Galp Energa and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Galp Energa position performs unexpectedly, BP Plc 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 BP Plc will offset losses from the drop in BP Plc's long position.| Galp Energa vs. Shell PLC ADR | Galp Energa vs. Equinor ASA ADR | Galp Energa vs. BP PLC ADR | Galp Energa vs. Eni SpA ADR |
| BP Plc vs. Unit Corporation | BP Plc vs. Galp Energa | BP Plc vs. Ecopetrol SA ADR | BP Plc vs. Equinor ASA ADR |
Check out your portfolio center.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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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