Correlation Between KGHM Polska and Aguila American

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

Diversification Opportunities for KGHM Polska and Aguila American

0.21

Correlation Coefficient

KGHM Polska  Aguila American

Modest diversification

The 3 months correlation between KGHM and Aguila is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding KGHM Polska Miedz and Aguila American Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aguila American Gold 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 Aguila American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aguila American Gold has no effect on the direction of KGHM Polska i.e., KGHM Polska and Aguila American go up and down completely randomly.

Pair Corralation between KGHM Polska and Aguila American

Assuming the 90 days horizon KGHM Polska is expected to generate 2.18 times less return on investment than Aguila American. But when comparing it to its historical volatility, KGHM Polska Miedz is 2.83 times less risky than Aguila American. It trades about 0.07 of its potential returns per unit of risk. Aguila American Gold is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  23.00  in Aguila American Gold on September 20, 2024 and sell it today you would earn a total of  5.00  from holding Aguila American Gold or generate 21.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	38.73%
Values	Daily Returns

KGHM Polska Miedz  vs.  Aguila American Gold

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 nearly stable basic indicators, KGHM Polska is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Aguila American Gold

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Aguila American Gold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Aguila American reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KGHM Polska and Aguila American

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

The idea behind KGHM Polska Miedz and Aguila American Gold 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.