Correlation Between WisdomTree Cocoa and HSBC SP

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

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

Diversification Opportunities for WisdomTree Cocoa and HSBC SP

0.22

Correlation Coefficient

WisdomTree Cocoa  HSBC SP

Modest diversification

The 3 months correlation between WisdomTree and HSBC is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Cocoa 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 WisdomTree Cocoa 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 WisdomTree Cocoa 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 WisdomTree Cocoa i.e., WisdomTree Cocoa and HSBC SP go up and down completely randomly.

Pair Corralation between WisdomTree Cocoa and HSBC SP

Assuming the 90 days trading horizon WisdomTree Cocoa is expected to generate 5.38 times more return on investment than HSBC SP. However, WisdomTree Cocoa is 5.38 times more volatile than HSBC SP 500. It trades about 0.0 of its potential returns per unit of risk. HSBC SP 500 is currently generating about -0.04 per unit of risk. If you would invest  1,448  in WisdomTree Cocoa on December 2, 2024 and sell it today you would lose (59.00) from holding WisdomTree Cocoa or give up 4.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

WisdomTree Cocoa  vs.  HSBC SP 500

WisdomTree Cocoa

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree Cocoa has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, WisdomTree Cocoa is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

HSBC SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days HSBC SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, HSBC SP is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with WisdomTree Cocoa and HSBC SP

The main advantage of trading using opposite WisdomTree Cocoa and HSBC SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Cocoa 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 WisdomTree Cocoa 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.