Correlation Between KGHM Polska and CVS Health

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

Diversification Opportunities for KGHM Polska and CVS Health

-0.69

Correlation Coefficient

KGHM Polska  CVS Health

Excellent diversification

The 3 months correlation between KGHM and CVS is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding KGHM Polska Miedz and CVS Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health Corp 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 CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health Corp has no effect on the direction of KGHM Polska i.e., KGHM Polska and CVS Health go up and down completely randomly.

Pair Corralation between KGHM Polska and CVS Health

Assuming the 90 days trading horizon KGHM Polska Miedz is expected to generate 2.58 times more return on investment than CVS Health. However, KGHM Polska is 2.58 times more volatile than CVS Health Corp. It trades about 0.28 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.26 per unit of risk. If you would invest  2,745  in KGHM Polska Miedz on February 1, 2024 and sell it today you would earn a total of  565.00  from holding KGHM Polska Miedz or generate 20.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

KGHM Polska Miedz  vs.  CVS Health Corp

KGHM Polska Miedz

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KGHM Polska Miedz are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical indicators, KGHM Polska reported solid returns over the last few months and may actually be approaching a breakup point.

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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 CVS Health

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

The idea behind KGHM Polska Miedz and CVS Health Corp 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..