Correlation Between KGHM Polska and Eurotech SpA

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

Diversification Opportunities for KGHM Polska and Eurotech SpA

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between KGHM and Eurotech is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding KGHM Polska Miedz and Eurotech SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eurotech 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 Eurotech SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eurotech SpA has no effect on the direction of KGHM Polska i.e., KGHM Polska and Eurotech SpA go up and down completely randomly.

Pair Corralation between KGHM Polska and Eurotech SpA

Assuming the 90 days trading horizon KGHM Polska is expected to generate 2.4 times less return on investment than Eurotech SpA. But when comparing it to its historical volatility, KGHM Polska Miedz is 1.2 times less risky than Eurotech SpA. It trades about 0.1 of its potential returns per unit of risk. Eurotech SpA is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  64.00  in Eurotech SpA on April 21, 2025 and sell it today you would earn a total of  24.00  from holding Eurotech SpA or generate 37.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

KGHM Polska Miedz  vs.  Eurotech SpA

 Performance 
       Timeline  
KGHM Polska Miedz 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
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. Despite nearly fragile technical indicators, KGHM Polska reported solid returns over the last few months and may actually be approaching a breakup point.
Eurotech SpA 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Eurotech SpA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Eurotech SpA reported solid returns over the last few months and may actually be approaching a breakup point.

KGHM Polska and Eurotech SpA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with KGHM Polska and Eurotech SpA

The main advantage of trading using opposite KGHM Polska and Eurotech SpA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KGHM Polska position performs unexpectedly, Eurotech 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 Eurotech SpA will offset losses from the drop in Eurotech SpA's long position.
The idea behind KGHM Polska Miedz and Eurotech 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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