Can any of the company-specific risk be diversified away by investing in both Harmony Gold and Rose Hill 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 Rose Hill 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 Rose Hill Acquisition, you can compare the effects of market volatilities on Harmony Gold and Rose Hill 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 Rose Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Harmony Gold and Rose Hill.
Diversification Opportunities for Harmony Gold and Rose Hill
The 3 months correlation between Harmony and Rose is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Harmony Gold Mining and Rose Hill Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rose Hill Acquisition 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 Rose Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rose Hill Acquisition has no effect on the direction of Harmony Gold i.e., Harmony Gold and Rose Hill go up and down completely randomly.
Pair Corralation between Harmony Gold and Rose Hill
Assuming the 90 days horizon Harmony Gold Mining is expected to generate 3.36 times more return on investment than Rose Hill. However, Harmony Gold is 3.36 times more volatile than Rose Hill Acquisition. It trades about 0.16 of its potential returns per unit of risk. Rose Hill Acquisition is currently generating about -0.1 per unit of risk. If you would invest 396.00 in Harmony Gold Mining on September 2, 2023 and sell it today you would earn a total of 60.00 from holding Harmony Gold Mining or generate 15.15% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Harmony Gold Mining are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Harmony Gold is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.
Over the last 90 days Rose Hill Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Rose Hill is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
The main advantage of trading using opposite Harmony Gold and Rose Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Harmony Gold position performs unexpectedly, Rose Hill 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 Rose Hill will offset losses from the drop in Rose Hill's long position.
The idea behind Harmony Gold Mining and Rose Hill Acquisition 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.
Use Bollinger Bands indicator to analyze target price for a given investing horizon
Macroaxis helps investors of all levels and skills to maximize the upside of all their holdings and minimize the risk
associated with market volatility, economic swings, and company-specific events. View terms and conditions