Correlation Between Galp Energia and Sonae SGPS

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

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

Diversification Opportunities for Galp Energia and Sonae SGPS

0.44

Correlation Coefficient

Galp Energia  Sonae SGPS

Very weak diversification

The 3 months correlation between Galp and Sonae is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Galp Energia SGPS and Sonae SGPS SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonae SGPS SA and Galp Energia 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 Energia SGPS are associated (or correlated) with Sonae SGPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonae SGPS SA has no effect on the direction of Galp Energia i.e., Galp Energia and Sonae SGPS go up and down completely randomly.

Pair Corralation between Galp Energia and Sonae SGPS

Assuming the 90 days trading horizon Galp Energia SGPS is expected to generate 4.13 times more return on investment than Sonae SGPS. However, Galp Energia is 4.13 times more volatile than Sonae SGPS SA. It trades about 0.31 of its potential returns per unit of risk. Sonae SGPS SA is currently generating about 0.2 per unit of risk. If you would invest  1,518  in Galp Energia SGPS on January 25, 2024 and sell it today you would earn a total of  481.00  from holding Galp Energia SGPS or generate 31.69% return on investment over 90 days.

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

Galp Energia SGPS  vs.  Sonae SGPS SA

Galp Energia SGPS

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Galp Energia SGPS are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Galp Energia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sonae SGPS SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sonae SGPS SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Sonae SGPS is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Galp Energia and Sonae SGPS

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

The idea behind Galp Energia SGPS and Sonae SGPS SA 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.