Correlation Between Bitcoin and HSBC Developed

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

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

Diversification Opportunities for Bitcoin and HSBC Developed

0.66

Correlation Coefficient

Bitcoin  HSBC Developed

Poor diversification

The 3 months correlation between Bitcoin and HSBC is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and HSBC Developed World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Developed World and Bitcoin 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 Bitcoin are associated (or correlated) with HSBC Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Developed World has no effect on the direction of Bitcoin i.e., Bitcoin and HSBC Developed go up and down completely randomly.

Pair Corralation between Bitcoin and HSBC Developed

Assuming the 90 days trading horizon Bitcoin is expected to generate 5.72 times more return on investment than HSBC Developed. However, Bitcoin is 5.72 times more volatile than HSBC Developed World. It trades about 0.27 of its potential returns per unit of risk. HSBC Developed World is currently generating about 0.21 per unit of risk. If you would invest  6,028,038  in Bitcoin on October 9, 2024 and sell it today you would earn a total of  4,194,962  from holding Bitcoin or generate 69.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

Bitcoin  vs.  HSBC Developed World

Bitcoin

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

HSBC Developed World

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Developed World are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HSBC Developed may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Bitcoin and HSBC Developed

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

The idea behind Bitcoin and HSBC Developed World 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.