Correlation Between KGHM Polska and Pepco Group

Can any of the company-specific risk be diversified away by investing in both KGHM Polska and Pepco Group 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 Pepco Group 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 Pepco Group BV, you can compare the effects of market volatilities on KGHM Polska and Pepco Group 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 Pepco Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of KGHM Polska and Pepco Group.

Diversification Opportunities for KGHM Polska and Pepco Group

0.38

Correlation Coefficient

KGHM Polska  Pepco Group

Weak diversification

The 3 months correlation between KGHM and Pepco is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding KGHM Polska Miedz and Pepco Group BV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pepco Group BV 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 Pepco Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pepco Group BV has no effect on the direction of KGHM Polska i.e., KGHM Polska and Pepco Group go up and down completely randomly.

Pair Corralation between KGHM Polska and Pepco Group

Assuming the 90 days trading horizon KGHM Polska is expected to generate 1.34 times less return on investment than Pepco Group. But when comparing it to its historical volatility, KGHM Polska Miedz is 1.37 times less risky than Pepco Group. It trades about 0.07 of its potential returns per unit of risk. Pepco Group BV is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,590  in Pepco Group BV on November 29, 2024 and sell it today you would earn a total of  142.00  from holding Pepco Group BV or generate 8.93% return on investment over 90 days.

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

KGHM Polska Miedz  vs.  Pepco Group BV

KGHM Polska Miedz

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KGHM Polska Miedz are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, KGHM Polska may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pepco Group BV

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pepco Group BV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pepco Group may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with KGHM Polska and Pepco Group

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

The idea behind KGHM Polska Miedz and Pepco Group BV 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 Stocks Directory module to find actively traded stocks across global markets.