Correlation Between Bank Polska and KGHM Polska

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

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

Diversification Opportunities for Bank Polska and KGHM Polska

0.92

Correlation Coefficient

Bank Polska  KGHM Polska

Almost no diversification

The 3 months correlation between Bank and KGHM is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Bank Polska Kasa and KGHM Polska Miedz in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KGHM Polska Miedz and Bank 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 Bank Polska Kasa are associated (or correlated) with KGHM Polska. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KGHM Polska Miedz has no effect on the direction of Bank Polska i.e., Bank Polska and KGHM Polska go up and down completely randomly.

Pair Corralation between Bank Polska and KGHM Polska

Assuming the 90 days trading horizon Bank Polska Kasa is expected to generate 0.97 times more return on investment than KGHM Polska. However, Bank Polska Kasa is 1.03 times less risky than KGHM Polska. It trades about 0.22 of its potential returns per unit of risk. KGHM Polska Miedz is currently generating about 0.1 per unit of risk. If you would invest  13,790  in Bank Polska Kasa on December 29, 2024 and sell it today you would earn a total of  4,260  from holding Bank Polska Kasa or generate 30.89% return on investment over 90 days.

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

Bank Polska Kasa  vs.  KGHM Polska Miedz

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 17 (%) 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.

KGHM Polska Miedz

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KGHM Polska Miedz are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, KGHM Polska reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Polska and KGHM Polska

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

The idea behind Bank Polska Kasa and KGHM Polska Miedz 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.