Correlation Between HSBC SP and HSBC Asia

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

Diversification Opportunities for HSBC SP and HSBC Asia

0.82

Correlation Coefficient

HSBC SP  HSBC Asia

Very poor diversification

The 3 months correlation between HSBC and HSBC is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding HSBC SP 500 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 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 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 SP i.e., HSBC SP and HSBC Asia go up and down completely randomly.

Pair Corralation between HSBC SP and HSBC Asia

Assuming the 90 days trading horizon HSBC SP 500 is expected to under-perform the HSBC Asia. In addition to that, HSBC SP is 1.15 times more volatile than HSBC Asia Pacific. It trades about -0.13 of its total potential returns per unit of risk. HSBC Asia Pacific is currently generating about -0.02 per unit of volatility. If you would invest  1,673  in HSBC Asia Pacific on December 23, 2024 and sell it today you would lose (26.00) from holding HSBC Asia Pacific or give up 1.55% of portfolio value over 90 days.

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

HSBC SP 500  vs.  HSBC Asia Pacific

HSBC SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days HSBC SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

HSBC Asia Pacific

Risk-Adjusted Performance

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HSBC SP and HSBC Asia

The main advantage of trading using opposite HSBC SP and HSBC Asia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HSBC SP 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 SP 500 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.