Correlation Between KGHM Polska and Micron Technology

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

Diversification Opportunities for KGHM Polska and Micron Technology

0.09

Correlation Coefficient

KGHM Polska  Micron Technology

Significant diversification

The 3 months correlation between KGHM and Micron is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding KGHM Polska Miedz and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology 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 Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of KGHM Polska i.e., KGHM Polska and Micron Technology go up and down completely randomly.

Pair Corralation between KGHM Polska and Micron Technology

Assuming the 90 days trading horizon KGHM Polska Miedz is expected to generate 0.51 times more return on investment than Micron Technology. However, KGHM Polska Miedz is 1.97 times less risky than Micron Technology. It trades about -0.17 of its potential returns per unit of risk. Micron Technology is currently generating about -0.09 per unit of risk. If you would invest  3,008  in KGHM Polska Miedz on September 27, 2024 and sell it today you would lose (258.00) from holding KGHM Polska Miedz or give up 8.58% of portfolio value over 90 days.

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

KGHM Polska Miedz  vs.  Micron Technology

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. Despite uncertain performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Micron Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with KGHM Polska and Micron Technology

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

The idea behind KGHM Polska Miedz and Micron Technology 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.