Correlation Between HSBC MSCI and Xtrackers

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

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

Diversification Opportunities for HSBC MSCI and Xtrackers

-0.04

Correlation Coefficient

HSBC MSCI  Xtrackers

Good diversification

The 3 months correlation between HSBC and Xtrackers is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding HSBC MSCI World and Xtrackers II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers II and HSBC MSCI 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 MSCI World are associated (or correlated) with Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers II has no effect on the direction of HSBC MSCI i.e., HSBC MSCI and Xtrackers go up and down completely randomly.

Pair Corralation between HSBC MSCI and Xtrackers

Assuming the 90 days trading horizon HSBC MSCI World is expected to generate 0.93 times more return on investment than Xtrackers. However, HSBC MSCI World is 1.08 times less risky than Xtrackers. It trades about 0.11 of its potential returns per unit of risk. Xtrackers II is currently generating about -0.04 per unit of risk. If you would invest  1,884  in HSBC MSCI World on October 5, 2024 and sell it today you would earn a total of  87.00  from holding HSBC MSCI World or generate 4.62% return on investment over 90 days.

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

HSBC MSCI World  vs.  Xtrackers II

HSBC MSCI World

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days HSBC MSCI World has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, HSBC MSCI is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Xtrackers II

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers II has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HSBC MSCI and Xtrackers

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

The idea behind HSBC MSCI World and Xtrackers II 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.