Correlation Between Pepco Group and Bank Polska

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

By analyzing existing cross correlation between Pepco Group BV and Bank Polska Kasa, you can compare the effects of market volatilities on Pepco Group and Bank Polska 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 Pepco Group with a short position of Bank Polska. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pepco Group and Bank Polska.

Diversification Opportunities for Pepco Group and Bank Polska

0.54

Correlation Coefficient

Pepco Group  Bank Polska

Very weak diversification

The 3 months correlation between Pepco and Bank is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Pepco Group BV and Bank Polska Kasa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Polska Kasa and Pepco Group 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 Pepco Group BV are associated (or correlated) with Bank Polska. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Polska Kasa has no effect on the direction of Pepco Group i.e., Pepco Group and Bank Polska go up and down completely randomly.

Pair Corralation between Pepco Group and Bank Polska

Assuming the 90 days trading horizon Pepco Group is expected to generate 2.09 times less return on investment than Bank Polska. But when comparing it to its historical volatility, Pepco Group BV is 1.07 times less risky than Bank Polska. It trades about 0.11 of its potential returns per unit of risk. Bank Polska Kasa is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  15,850  in Bank Polska Kasa on November 29, 2024 and sell it today you would earn a total of  1,605  from holding Bank Polska Kasa or generate 10.13% return on investment over 90 days.

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

Pepco Group BV  vs.  Bank Polska Kasa

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.

Bank Polska Kasa

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Polska Kasa are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Bank Polska reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pepco Group and Bank Polska

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

The idea behind Pepco Group BV and Bank Polska Kasa 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.