Correlation Between Amazon and HSBC SP

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

By analyzing existing cross correlation between Amazon Inc and HSBC SP 500, you can compare the effects of market volatilities on Amazon and HSBC SP 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 Amazon with a short position of HSBC SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and HSBC SP.

Diversification Opportunities for Amazon and HSBC SP

0.84

Correlation Coefficient

Amazon  HSBC SP

Very poor diversification

The 3 months correlation between Amazon and HSBC is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and HSBC SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC SP 500 and Amazon 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 Amazon Inc are associated (or correlated) with HSBC SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC SP 500 has no effect on the direction of Amazon i.e., Amazon and HSBC SP go up and down completely randomly.

Pair Corralation between Amazon and HSBC SP

Given the investment horizon of 90 days Amazon Inc is expected to generate 2.1 times more return on investment than HSBC SP. However, Amazon is 2.1 times more volatile than HSBC SP 500. It trades about 0.15 of its potential returns per unit of risk. HSBC SP 500 is currently generating about 0.23 per unit of risk. If you would invest  17,625  in Amazon Inc on September 3, 2024 and sell it today you would earn a total of  3,164  from holding Amazon Inc or generate 17.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Amazon Inc  vs.  HSBC SP 500

Amazon Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

HSBC SP 500

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC SP 500 are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, HSBC SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Amazon and HSBC SP

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

The idea behind Amazon Inc and HSBC SP 500 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.