Correlation Between KGHM Polska and Geox SpA

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

Diversification Opportunities for KGHM Polska and Geox SpA

-0.61

Correlation Coefficient

KGHM Polska  Geox SpA

Excellent diversification

The 3 months correlation between KGHM and Geox is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding KGHM Polska Miedz and Geox SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geox SpA 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 Geox SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geox SpA has no effect on the direction of KGHM Polska i.e., KGHM Polska and Geox SpA go up and down completely randomly.

Pair Corralation between KGHM Polska and Geox SpA

Assuming the 90 days trading horizon KGHM Polska Miedz is expected to generate 1.36 times more return on investment than Geox SpA. However, KGHM Polska is 1.36 times more volatile than Geox SpA. It trades about 0.25 of its potential returns per unit of risk. Geox SpA is currently generating about -0.05 per unit of risk. If you would invest  2,612  in KGHM Polska Miedz on February 18, 2024 and sell it today you would earn a total of  1,233  from holding KGHM Polska Miedz or generate 47.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

KGHM Polska Miedz  vs.  Geox SpA

KGHM Polska Miedz

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in KGHM Polska Miedz are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, KGHM Polska reported solid returns over the last few months and may actually be approaching a breakup point.

Geox SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Geox SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with KGHM Polska and Geox SpA

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

The idea behind KGHM Polska Miedz and Geox SpA 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.