Correlation Between Stepan and Harmony Gold

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

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

Diversification Opportunities for Stepan and Harmony Gold

-0.65

Correlation Coefficient

Stepan  Harmony Gold

Excellent diversification

The 3 months correlation between Stepan and Harmony is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company 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 Stepan 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 Stepan Company 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 Stepan i.e., Stepan and Harmony Gold go up and down completely randomly.

Pair Corralation between Stepan and Harmony Gold

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Harmony Gold. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.64 times less risky than Harmony Gold. The stock trades about -0.1 of its potential returns per unit of risk. The Harmony Gold Mining is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  824.00  in Harmony Gold Mining on December 27, 2024 and sell it today you would earn a total of  460.00  from holding Harmony Gold Mining or generate 55.83% return on investment over 90 days.

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

Stepan Company  vs.  Harmony Gold Mining

Stepan Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain primary indicators, Harmony Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Harmony Gold

The main advantage of trading using opposite Stepan and Harmony Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan 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 Stepan Company 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.