Correlation Between HSBC SP and Xtrackers Nikkei

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

By analyzing existing cross correlation between HSBC SP 500 and Xtrackers Nikkei 225, you can compare the effects of market volatilities on HSBC SP and Xtrackers Nikkei 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 SP with a short position of Xtrackers Nikkei. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC SP and Xtrackers Nikkei.

Diversification Opportunities for HSBC SP and Xtrackers Nikkei

0.38

Correlation Coefficient

HSBC SP  Xtrackers Nikkei

Weak diversification

The 3 months correlation between HSBC and Xtrackers is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding HSBC SP 500 and Xtrackers Nikkei 225 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Nikkei 225 and HSBC SP 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 SP 500 are associated (or correlated) with Xtrackers Nikkei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Nikkei 225 has no effect on the direction of HSBC SP i.e., HSBC SP and Xtrackers Nikkei go up and down completely randomly.

Pair Corralation between HSBC SP and Xtrackers Nikkei

Assuming the 90 days trading horizon HSBC SP 500 is expected to generate 0.76 times more return on investment than Xtrackers Nikkei. However, HSBC SP 500 is 1.31 times less risky than Xtrackers Nikkei. It trades about 0.15 of its potential returns per unit of risk. Xtrackers Nikkei 225 is currently generating about 0.06 per unit of risk. If you would invest  4,151  in HSBC SP 500 on September 23, 2024 and sell it today you would earn a total of  1,694  from holding HSBC SP 500 or generate 40.81% return on investment over 90 days.

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

HSBC SP 500  vs.  Xtrackers Nikkei 225

HSBC SP 500

Risk-Adjusted Performance

15 of 100

Good

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.

Xtrackers Nikkei 225

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Nikkei 225 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, Xtrackers Nikkei 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 SP and Xtrackers Nikkei

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

The idea behind HSBC SP 500 and Xtrackers Nikkei 225 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 Global Correlations module to find global opportunities by holding instruments from different markets.