Correlation Between Harmony Gold and Absa

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

By analyzing existing cross correlation between Harmony Gold Mining and Absa Group, you can compare the effects of market volatilities on Harmony Gold and Absa 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 Harmony Gold with a short position of Absa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Harmony Gold and Absa.

Diversification Opportunities for Harmony Gold and Absa

-0.51

Correlation Coefficient

Harmony Gold  Absa

Excellent diversification

The 3 months correlation between Harmony and Absa is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Harmony Gold Mining and Absa Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group and Harmony Gold 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 Harmony Gold Mining are associated (or correlated) with Absa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absa Group has no effect on the direction of Harmony Gold i.e., Harmony Gold and Absa go up and down completely randomly.

Pair Corralation between Harmony Gold and Absa

Assuming the 90 days trading horizon Harmony Gold Mining is expected to generate 2.29 times more return on investment than Absa. However, Harmony Gold is 2.29 times more volatile than Absa Group. It trades about 0.24 of its potential returns per unit of risk. Absa Group is currently generating about -0.03 per unit of risk. If you would invest  1,563,900  in Harmony Gold Mining on December 27, 2024 and sell it today you would earn a total of  753,200  from holding Harmony Gold Mining or generate 48.16% return on investment over 90 days.

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

Harmony Gold Mining  vs.  Absa Group

Harmony Gold Mining

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Harmony Gold Mining are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Harmony Gold exhibited solid returns over the last few months and may actually be approaching a breakup point.

Absa Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Absa Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Absa is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Harmony Gold and Absa

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

The idea behind Harmony Gold Mining and Absa Group 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.