Correlation Between UniCredit SpA and KGHM Polska

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

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

Diversification Opportunities for UniCredit SpA and KGHM Polska

0.33

Correlation Coefficient

UniCredit SpA  KGHM Polska

Weak diversification

The 3 months correlation between UniCredit and KGHM is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding UniCredit SpA 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 UniCredit SpA 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 UniCredit SpA 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 UniCredit SpA i.e., UniCredit SpA and KGHM Polska go up and down completely randomly.

Pair Corralation between UniCredit SpA and KGHM Polska

Assuming the 90 days trading horizon UniCredit SpA is expected to generate 0.91 times more return on investment than KGHM Polska. However, UniCredit SpA is 1.1 times less risky than KGHM Polska. It trades about 0.16 of its potential returns per unit of risk. KGHM Polska Miedz is currently generating about 0.07 per unit of risk. If you would invest  16,380  in UniCredit SpA on November 20, 2024 and sell it today you would earn a total of  2,620  from holding UniCredit SpA or generate 16.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.55%
Values	Daily Returns

UniCredit SpA  vs.  KGHM Polska Miedz

UniCredit SpA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in UniCredit SpA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, UniCredit SpA reported solid returns over the last few months and may actually be approaching a breakup point.

KGHM Polska Miedz

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KGHM Polska Miedz are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, KGHM Polska may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with UniCredit SpA and KGHM Polska

The main advantage of trading using opposite UniCredit SpA and KGHM Polska positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UniCredit SpA 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 UniCredit SpA 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.