Correlation Between Canadian Utilities and HSBC Holdings

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

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

Diversification Opportunities for Canadian Utilities and HSBC Holdings

0.13

Correlation Coefficient

Canadian Utilities  HSBC Holdings

Average diversification

The 3 months correlation between Canadian and HSBC is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited 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 Canadian Utilities 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 Canadian Utilities Limited 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 Canadian Utilities i.e., Canadian Utilities and HSBC Holdings go up and down completely randomly.

Pair Corralation between Canadian Utilities and HSBC Holdings

Assuming the 90 days horizon Canadian Utilities is expected to generate 14.38 times less return on investment than HSBC Holdings. But when comparing it to its historical volatility, Canadian Utilities Limited is 2.06 times less risky than HSBC Holdings. It trades about 0.03 of its potential returns per unit of risk. HSBC Holdings plc is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  902.00  in HSBC Holdings plc on December 22, 2024 and sell it today you would earn a total of  179.00  from holding HSBC Holdings plc or generate 19.84% return on investment over 90 days.

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

Canadian Utilities Limited  vs.  HSBC Holdings plc

Canadian Utilities

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Utilities Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

HSBC Holdings plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental indicators, HSBC Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Utilities and HSBC Holdings

The main advantage of trading using opposite Canadian Utilities and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Utilities 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 Canadian Utilities Limited 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.