Correlation Between IShares Treasury and HSBC Emerging

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

By analyzing existing cross correlation between iShares Treasury Bond and HSBC Emerging Market, you can compare the effects of market volatilities on IShares Treasury and HSBC Emerging 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 IShares Treasury with a short position of HSBC Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Treasury and HSBC Emerging.

Diversification Opportunities for IShares Treasury and HSBC Emerging

0.73

Correlation Coefficient

IShares Treasury  HSBC Emerging

Poor diversification

The 3 months correlation between IShares and HSBC is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding iShares Treasury Bond and HSBC Emerging Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Emerging Market and IShares Treasury 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 iShares Treasury Bond are associated (or correlated) with HSBC Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Emerging Market has no effect on the direction of IShares Treasury i.e., IShares Treasury and HSBC Emerging go up and down completely randomly.

Pair Corralation between IShares Treasury and HSBC Emerging

Assuming the 90 days trading horizon IShares Treasury is expected to generate 1.05 times less return on investment than HSBC Emerging. But when comparing it to its historical volatility, iShares Treasury Bond is 1.34 times less risky than HSBC Emerging. It trades about 0.07 of its potential returns per unit of risk. HSBC Emerging Market is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,523  in HSBC Emerging Market on December 30, 2024 and sell it today you would earn a total of  52.00  from holding HSBC Emerging Market or generate 3.41% return on investment over 90 days.

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

iShares Treasury Bond  vs.  HSBC Emerging Market

iShares Treasury Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Treasury Bond are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares Treasury is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

HSBC Emerging Market

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Emerging Market are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, HSBC Emerging 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 IShares Treasury and HSBC Emerging

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

The idea behind iShares Treasury Bond and HSBC Emerging Market 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.