Correlation Between Sonae SGPS and Galp Energia

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

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

Diversification Opportunities for Sonae SGPS and Galp Energia

0.13

Correlation Coefficient

Sonae SGPS  Galp Energia

Average diversification

The 3 months correlation between Sonae and Galp is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Sonae SGPS SA and Galp Energia SGPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galp Energia SGPS and Sonae SGPS 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 Sonae SGPS SA 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 SGPS has no effect on the direction of Sonae SGPS i.e., Sonae SGPS and Galp Energia go up and down completely randomly.

Pair Corralation between Sonae SGPS and Galp Energia

Assuming the 90 days trading horizon Sonae SGPS SA is expected to under-perform the Galp Energia. But the stock apears to be less risky and, when comparing its historical volatility, Sonae SGPS SA is 1.48 times less risky than Galp Energia. The stock trades about -0.07 of its potential returns per unit of risk. The Galp Energia SGPS is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,538  in Galp Energia SGPS on January 19, 2024 and sell it today you would earn a total of  73.00  from holding Galp Energia SGPS or generate 4.75% return on investment over 90 days.

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

Sonae SGPS SA  vs.  Galp Energia SGPS

Sonae SGPS SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sonae SGPS SA has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Galp Energia SGPS

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Galp Energia SGPS are ranked lower than 13 (%) 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.

Pair Trading with Sonae SGPS and Galp Energia

The main advantage of trading using opposite Sonae SGPS and Galp Energia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sonae SGPS 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 Sonae SGPS SA and Galp Energia SGPS 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.