Correlation Between KGHM Polska and Volkswagen

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

Diversification Opportunities for KGHM Polska and Volkswagen

0.83

Correlation Coefficient

KGHM Polska  Volkswagen

Very poor diversification

The 3 months correlation between KGHM and Volkswagen is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding KGHM Polska Miedz and Volkswagen AG Non Vtg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG Non 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG Non has no effect on the direction of KGHM Polska i.e., KGHM Polska and Volkswagen go up and down completely randomly.

Pair Corralation between KGHM Polska and Volkswagen

Assuming the 90 days trading horizon KGHM Polska Miedz is expected to under-perform the Volkswagen. In addition to that, KGHM Polska is 1.27 times more volatile than Volkswagen AG Non Vtg. It trades about -0.23 of its total potential returns per unit of risk. Volkswagen AG Non Vtg is currently generating about -0.11 per unit of volatility. If you would invest  41,400  in Volkswagen AG Non Vtg on September 29, 2024 and sell it today you would lose (4,570) from holding Volkswagen AG Non Vtg or give up 11.04% of portfolio value over 90 days.

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

KGHM Polska Miedz  vs.  Volkswagen AG Non Vtg

KGHM Polska Miedz

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KGHM Polska Miedz has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Volkswagen AG Non

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG Non Vtg has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with KGHM Polska and Volkswagen

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

The idea behind KGHM Polska Miedz and Volkswagen AG Non Vtg 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.