Correlation Between HSBC Holdings and Companhia Paranaense

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

Diversification Opportunities for HSBC Holdings and Companhia Paranaense

-0.37

Correlation Coefficient

HSBC Holdings  Companhia Paranaense

Very good diversification

The 3 months correlation between HSBC and Companhia is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings plc and Companhia Paranaense de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Paranaense 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 Companhia Paranaense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Paranaense has no effect on the direction of HSBC Holdings i.e., HSBC Holdings and Companhia Paranaense go up and down completely randomly.

Pair Corralation between HSBC Holdings and Companhia Paranaense

Assuming the 90 days trading horizon HSBC Holdings plc is expected to generate 0.48 times more return on investment than Companhia Paranaense. However, HSBC Holdings plc is 2.1 times less risky than Companhia Paranaense. It trades about 0.13 of its potential returns per unit of risk. Companhia Paranaense de is currently generating about 0.02 per unit of risk. If you would invest  3,915  in HSBC Holdings plc on August 31, 2024 and sell it today you would earn a total of  505.00  from holding HSBC Holdings plc or generate 12.9% return on investment over 90 days.

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

HSBC Holdings plc  vs.  Companhia Paranaense de

HSBC Holdings plc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, HSBC Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Companhia Paranaense

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia Paranaense de are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Companhia Paranaense is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HSBC Holdings and Companhia Paranaense

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

The idea behind HSBC Holdings plc and Companhia Paranaense de 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.