Correlation Between Harmony Gold and Rio Tinto

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

Diversification Opportunities for Harmony Gold and Rio Tinto

0.86

Correlation Coefficient

Harmony Gold  Rio Tinto

Very poor diversification

The 3 months correlation between Harmony and Rio is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Harmony Gold Mining and Rio Tinto PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto PLC 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 Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto PLC has no effect on the direction of Harmony Gold i.e., Harmony Gold and Rio Tinto go up and down completely randomly.

Pair Corralation between Harmony Gold and Rio Tinto

Assuming the 90 days trading horizon Harmony Gold Mining is expected to generate 1.94 times more return on investment than Rio Tinto. However, Harmony Gold is 1.94 times more volatile than Rio Tinto PLC. It trades about 0.29 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.23 per unit of risk. If you would invest  984,000  in Harmony Gold Mining on December 20, 2024 and sell it today you would earn a total of  648,500  from holding Harmony Gold Mining or generate 65.9% return on investment over 90 days.

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

Harmony Gold Mining  vs.  Rio Tinto PLC

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 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Harmony Gold sustained solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Rio Tinto sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Harmony Gold and Rio Tinto

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

The idea behind Harmony Gold Mining and Rio Tinto PLC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.