Correlation Between KGHM Polska and CEZ As

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

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

Diversification Opportunities for KGHM Polska and CEZ As

0.44

Correlation Coefficient

KGHM Polska  CEZ As

Very weak diversification

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

Pair Corralation between KGHM Polska and CEZ As

Assuming the 90 days trading horizon KGHM Polska is expected to generate 1.22 times less return on investment than CEZ As. In addition to that, KGHM Polska is 1.13 times more volatile than CEZ as. It trades about 0.1 of its total potential returns per unit of risk. CEZ as is currently generating about 0.14 per unit of volatility. 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

KGHM Polska Miedz  vs.  CEZ as

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.

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.

Pair Trading with KGHM Polska and CEZ As

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

The idea behind KGHM Polska Miedz and CEZ as 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.