Can any of the company-specific risk be diversified away by investing in both Revival Gold 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 Revival Gold and Harmony Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Revival Gold and Harmony Gold Mining, you can compare the effects of market volatilities on Revival Gold 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 Revival Gold with a short position of Harmony Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Revival Gold and Harmony Gold.
Diversification Opportunities for Revival Gold and Harmony Gold
The 3 months correlation between Revival and Harmony is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Revival Gold 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 Revival 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 Revival Gold 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 Revival Gold i.e., Revival Gold and Harmony Gold go up and down completely randomly.
Pair Corralation between Revival Gold and Harmony Gold
Assuming the 90 days horizon Revival Gold is expected to under-perform the Harmony Gold. In addition to that, Revival Gold is 1.52 times more volatile than Harmony Gold Mining. It trades about -0.05 of its total potential returns per unit of risk. Harmony Gold Mining is currently generating about -0.01 per unit of volatility. If you would invest 900.00 in Harmony Gold Mining on March 6, 2024 and sell it today you would lose (20.00) from holding Harmony Gold Mining or give up 2.22% of portfolio value over 90 days.
Over the last 90 days Revival Gold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Revival Gold is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Harmony Gold Mining are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Harmony Gold reported solid returns over the last few months and may actually be approaching a breakup point.