Correlation Between Harmony Gold and British Amer

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

Diversification Opportunities for Harmony Gold and British Amer

-0.63

Correlation Coefficient

Harmony Gold  British Amer

Excellent diversification

The 3 months correlation between Harmony and British is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Harmony Gold Mining and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British Amer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Harmony Gold i.e., Harmony Gold and British Amer go up and down completely randomly.

Pair Corralation between Harmony Gold and British Amer

Assuming the 90 days trading horizon Harmony Gold Mining is expected to under-perform the British Amer. In addition to that, Harmony Gold is 2.75 times more volatile than British American Tobacco. It trades about -0.04 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.04 per unit of volatility. If you would invest  6,589,164  in British American Tobacco on September 17, 2024 and sell it today you would earn a total of  140,536  from holding British American Tobacco or generate 2.13% return on investment over 90 days.

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

Harmony Gold Mining  vs.  British American Tobacco

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 latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

British American Tobacco

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, British Amer 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 British Amer

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

The idea behind Harmony Gold Mining and British American Tobacco 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.