Correlation Between KGHM Polska and NorAm Drilling
Can any of the company-specific risk be diversified away by investing in both KGHM Polska and NorAm Drilling 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 NorAm Drilling 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 NorAm Drilling AS, you can compare the effects of market volatilities on KGHM Polska and NorAm Drilling 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 NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of KGHM Polska and NorAm Drilling.
Diversification Opportunities for KGHM Polska and NorAm Drilling
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between KGHM and NorAm is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding KGHM Polska Miedz and NorAm Drilling AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorAm Drilling AS 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 NorAm Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorAm Drilling AS has no effect on the direction of KGHM Polska i.e., KGHM Polska and NorAm Drilling go up and down completely randomly.
Pair Corralation between KGHM Polska and NorAm Drilling
Assuming the 90 days trading horizon KGHM Polska is expected to generate 25.72 times less return on investment than NorAm Drilling. But when comparing it to its historical volatility, KGHM Polska Miedz is 1.78 times less risky than NorAm Drilling. It trades about 0.01 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 266.00 in NorAm Drilling AS on September 14, 2024 and sell it today you would earn a total of 22.00 from holding NorAm Drilling AS or generate 8.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
KGHM Polska Miedz vs. NorAm Drilling AS
Performance |
| Timeline |
| KGHM Polska Miedz |
| NorAm Drilling AS |
KGHM Polska and NorAm Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KGHM Polska and NorAm Drilling
The main advantage of trading using opposite KGHM Polska and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KGHM Polska position performs unexpectedly, NorAm Drilling 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 NorAm Drilling will offset losses from the drop in NorAm Drilling's long position.| KGHM Polska vs. MOLSON RS BEVERAGE | KGHM Polska vs. ScanSource | KGHM Polska vs. Tsingtao Brewery | KGHM Polska vs. Suntory Beverage Food |
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Check out your portfolio center.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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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