Correlation Between CEZ As and KGHM Polska

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

By analyzing existing cross correlation between CEZ as and KGHM Polska Miedz, you can compare the effects of market volatilities on CEZ As and KGHM Polska 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 CEZ As with a short position of KGHM Polska. Check out your portfolio center. Please also check ongoing floating volatility patterns of CEZ As and KGHM Polska.

Diversification Opportunities for CEZ As and KGHM Polska

0.44

Correlation Coefficient

CEZ As  KGHM Polska

Very weak diversification

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

Pair Corralation between CEZ As and KGHM Polska

Assuming the 90 days trading horizon CEZ as is expected to generate 0.88 times more return on investment than KGHM Polska. However, CEZ as is 1.13 times less risky than KGHM Polska. It trades about 0.14 of its potential returns per unit of risk. KGHM Polska Miedz is currently generating about 0.1 per unit of risk. If you would invest  16,170  in CEZ as on December 29, 2024 and sell it today you would earn a total of  2,710  from holding CEZ as or generate 16.76% return on investment over 90 days.

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

CEZ as  vs.  KGHM Polska Miedz

CEZ as

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CEZ as are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, CEZ As reported solid returns over the last few months and may actually be approaching a breakup point.

KGHM Polska Miedz

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KGHM Polska Miedz are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, KGHM Polska reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CEZ As and KGHM Polska

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

The idea behind CEZ as and KGHM Polska Miedz 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.