Correlation Between HSBC MSCI and HSBC Asia

Can any of the company-specific risk be diversified away by investing in both HSBC MSCI and HSBC Asia 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 HSBC Asia 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 HSBC Asia Pacific, you can compare the effects of market volatilities on HSBC MSCI and HSBC Asia 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 HSBC Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC MSCI and HSBC Asia.

Diversification Opportunities for HSBC MSCI and HSBC Asia

0.18

Correlation Coefficient

HSBC MSCI  HSBC Asia

Average diversification

The 3 months correlation between HSBC and HSBC is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding HSBC MSCI World and HSBC Asia Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Asia Pacific 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 HSBC Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Asia Pacific has no effect on the direction of HSBC MSCI i.e., HSBC MSCI and HSBC Asia go up and down completely randomly.

Pair Corralation between HSBC MSCI and HSBC Asia

Assuming the 90 days trading horizon HSBC MSCI World is expected to generate 0.74 times more return on investment than HSBC Asia. However, HSBC MSCI World is 1.36 times less risky than HSBC Asia. It trades about 0.12 of its potential returns per unit of risk. HSBC Asia Pacific is currently generating about 0.03 per unit of risk. If you would invest  2,446  in HSBC MSCI World on October 11, 2024 and sell it today you would earn a total of  1,186  from holding HSBC MSCI World or generate 48.49% return on investment over 90 days.

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

HSBC MSCI World  vs.  HSBC Asia Pacific

HSBC MSCI World

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC MSCI World are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward-looking indicators, HSBC MSCI may actually be approaching a critical reversion point that can send shares even higher in February 2025.

HSBC Asia Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with HSBC MSCI and HSBC Asia

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

The idea behind HSBC MSCI World and HSBC Asia Pacific 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.