Can any of the company-specific risk be diversified away by investing in both Harmony Gold and PACCAR 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 PACCAR 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 PACCAR Inc, you can compare the effects of market volatilities on Harmony Gold and PACCAR 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 PACCAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Harmony Gold and PACCAR.
Diversification Opportunities for Harmony Gold and PACCAR
The 3 months correlation between Harmony and PACCAR is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Harmony Gold Mining and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc 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 PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of Harmony Gold i.e., Harmony Gold and PACCAR go up and down completely randomly.
Assuming the 90 days horizon Harmony Gold Mining is expected to under-perform the PACCAR. In addition to that, Harmony Gold is 2.72 times more volatile than PACCAR Inc. It trades about -0.01 of its total potential returns per unit of risk. PACCAR Inc is currently generating about 0.04 per unit of volatility. If you would invest 10,485 in PACCAR Inc on March 6, 2024 and sell it today you would earn a total of 109.00 from holding PACCAR Inc or generate 1.04% 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 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.
Over the last 90 days PACCAR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.