Correlation Between Harmony Gold and African Rainbow

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

Diversification Opportunities for Harmony Gold and African Rainbow

-0.51

Correlation Coefficient

Harmony Gold  African Rainbow

Excellent diversification

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

Pair Corralation between Harmony Gold and African Rainbow

Assuming the 90 days trading horizon Harmony Gold Mining is expected to under-perform the African Rainbow. In addition to that, Harmony Gold is 1.27 times more volatile than African Rainbow Capital. It trades about 0.0 of its total potential returns per unit of risk. African Rainbow Capital is currently generating about 0.13 per unit of volatility. If you would invest  66,000  in African Rainbow Capital on September 23, 2024 and sell it today you would earn a total of  29,000  from holding African Rainbow Capital or generate 43.94% return on investment over 90 days.

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

Harmony Gold Mining  vs.  African Rainbow Capital

Harmony Gold Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Harmony Gold Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

African Rainbow Capital

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in African Rainbow Capital are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, African Rainbow exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Harmony Gold and African Rainbow

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

The idea behind Harmony Gold Mining and African Rainbow Capital 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.