Correlation Between HSBC Holdings and Target

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

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

Diversification Opportunities for HSBC Holdings and Target

-0.39

Correlation Coefficient

HSBC Holdings  Target

Very good diversification

The 3 months correlation between HSBC and Target is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings plc and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and HSBC Holdings 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 HSBC Holdings plc are associated (or correlated) with Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of HSBC Holdings i.e., HSBC Holdings and Target go up and down completely randomly.

Pair Corralation between HSBC Holdings and Target

Assuming the 90 days trading horizon HSBC Holdings plc is expected to generate 1.23 times more return on investment than Target. However, HSBC Holdings is 1.23 times more volatile than Target. It trades about 0.06 of its potential returns per unit of risk. Target is currently generating about 0.02 per unit of risk. If you would invest  3,878  in HSBC Holdings plc on October 5, 2024 and sell it today you would earn a total of  3,618  from holding HSBC Holdings plc or generate 93.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.44%
Values	Daily Returns

HSBC Holdings plc  vs.  Target

HSBC Holdings plc

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HSBC Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Target

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Target may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with HSBC Holdings and Target

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

The idea behind HSBC Holdings plc and Target 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.