Correlation Between Merit Medical and Harmony Gold

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

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

Diversification Opportunities for Merit Medical and Harmony Gold

0.64

Correlation Coefficient

Merit Medical  Harmony Gold

Poor diversification

The 3 months correlation between Merit and Harmony is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Harmony Gold Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harmony Gold Mining and Merit Medical 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 Merit Medical Systems are associated (or correlated) with Harmony Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harmony Gold Mining has no effect on the direction of Merit Medical i.e., Merit Medical and Harmony Gold go up and down completely randomly.

Pair Corralation between Merit Medical and Harmony Gold

Given the investment horizon of 90 days Merit Medical is expected to generate 9.62 times less return on investment than Harmony Gold. But when comparing it to its historical volatility, Merit Medical Systems is 1.94 times less risky than Harmony Gold. It trades about 0.05 of its potential returns per unit of risk. Harmony Gold Mining is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  834.00  in Harmony Gold Mining on December 19, 2024 and sell it today you would earn a total of  411.00  from holding Harmony Gold Mining or generate 49.28% return on investment over 90 days.

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

Merit Medical Systems  vs.  Harmony Gold Mining

Merit Medical Systems

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Merit Medical is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

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 fairly unfluctuating primary indicators, Harmony Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merit Medical and Harmony Gold

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

The idea behind Merit Medical Systems and Harmony Gold Mining 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.