Correlation Between Banco Bilbao and HSBC Holdings

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

By analyzing existing cross correlation between Banco Bilbao Vizcaya and HSBC Holdings PLC, you can compare the effects of market volatilities on Banco Bilbao and HSBC Holdings 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 Banco Bilbao with a short position of HSBC Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Bilbao and HSBC Holdings.

Diversification Opportunities for Banco Bilbao and HSBC Holdings

0.94

Correlation Coefficient

Banco Bilbao  HSBC Holdings

Almost no diversification

The 3 months correlation between Banco and HSBC is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Banco Bilbao Vizcaya and HSBC Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Holdings PLC and Banco Bilbao 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 Banco Bilbao Vizcaya are associated (or correlated) with HSBC Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Holdings PLC has no effect on the direction of Banco Bilbao i.e., Banco Bilbao and HSBC Holdings go up and down completely randomly.

Pair Corralation between Banco Bilbao and HSBC Holdings

Assuming the 90 days horizon Banco Bilbao Vizcaya is expected to generate 2.11 times more return on investment than HSBC Holdings. However, Banco Bilbao is 2.11 times more volatile than HSBC Holdings PLC. It trades about 0.25 of its potential returns per unit of risk. HSBC Holdings PLC is currently generating about 0.25 per unit of risk. If you would invest  1,016  in Banco Bilbao Vizcaya on December 27, 2024 and sell it today you would earn a total of  429.00  from holding Banco Bilbao Vizcaya or generate 42.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	86.89%
Values	Daily Returns

Banco Bilbao Vizcaya  vs.  HSBC Holdings PLC

Banco Bilbao Vizcaya

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Bilbao Vizcaya are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Banco Bilbao reported solid returns over the last few months and may actually be approaching a breakup point.

HSBC Holdings PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings PLC are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental drivers, HSBC Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco Bilbao and HSBC Holdings

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

The idea behind Banco Bilbao Vizcaya and HSBC Holdings PLC 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.