Correlation Between IShares STOXX and HSBC MSCI

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

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

Diversification Opportunities for IShares STOXX and HSBC MSCI

0.59

Correlation Coefficient

IShares STOXX  HSBC MSCI

Very weak diversification

The 3 months correlation between IShares and HSBC is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding iShares STOXX Europe and HSBC MSCI Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC MSCI Japan and IShares STOXX 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 STOXX Europe are associated (or correlated) with HSBC MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC MSCI Japan has no effect on the direction of IShares STOXX i.e., IShares STOXX and HSBC MSCI go up and down completely randomly.

Pair Corralation between IShares STOXX and HSBC MSCI

Assuming the 90 days trading horizon iShares STOXX Europe is expected to generate 0.74 times more return on investment than HSBC MSCI. However, iShares STOXX Europe is 1.34 times less risky than HSBC MSCI. It trades about 0.23 of its potential returns per unit of risk. HSBC MSCI Japan is currently generating about 0.07 per unit of risk. If you would invest  4,330  in iShares STOXX Europe on December 21, 2024 and sell it today you would earn a total of  452.00  from holding iShares STOXX Europe or generate 10.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

iShares STOXX Europe  vs.  HSBC MSCI Japan

iShares STOXX Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares STOXX Europe are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares STOXX may actually be approaching a critical reversion point that can send shares even higher in April 2025.

HSBC MSCI Japan

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC MSCI Japan are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, HSBC MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares STOXX and HSBC MSCI

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

The idea behind iShares STOXX Europe and HSBC MSCI Japan 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.