Correlation Between IShares STOXX and HSBC SP

Can any of the company-specific risk be diversified away by investing in both IShares STOXX 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 IShares STOXX and HSBC SP 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 SP 500, you can compare the effects of market volatilities on IShares STOXX 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 IShares STOXX with a short position of HSBC SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares STOXX and HSBC SP.

Diversification Opportunities for IShares STOXX and HSBC SP

0.68

Correlation Coefficient

IShares STOXX  HSBC SP

Poor diversification

The 3 months correlation between IShares and HSBC is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding iShares STOXX Europe 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 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 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 IShares STOXX i.e., IShares STOXX and HSBC SP go up and down completely randomly.

Pair Corralation between IShares STOXX and HSBC SP

Assuming the 90 days trading horizon iShares STOXX Europe is expected to generate 1.36 times more return on investment than HSBC SP. However, IShares STOXX is 1.36 times more volatile than HSBC SP 500. It trades about 0.17 of its potential returns per unit of risk. HSBC SP 500 is currently generating about 0.11 per unit of risk. If you would invest  2,010  in iShares STOXX Europe on September 23, 2024 and sell it today you would earn a total of  60.00  from holding iShares STOXX Europe or generate 2.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

iShares STOXX Europe  vs.  HSBC SP 500

iShares STOXX Europe

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares STOXX Europe are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares STOXX is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

HSBC SP 500

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, HSBC SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares STOXX and HSBC SP

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

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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.