Correlation Between HSBC SP and HSBC MSCI

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

Diversification Opportunities for HSBC SP and HSBC MSCI

0.56

Correlation Coefficient

HSBC SP  HSBC MSCI

Very weak diversification

The 3 months correlation between HSBC and HSBC is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding HSBC SP 500 and HSBC MSCI China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC MSCI China 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC MSCI China has no effect on the direction of HSBC SP i.e., HSBC SP and HSBC MSCI go up and down completely randomly.

Pair Corralation between HSBC SP and HSBC MSCI

Assuming the 90 days trading horizon HSBC SP is expected to generate 1.55 times less return on investment than HSBC MSCI. But when comparing it to its historical volatility, HSBC SP 500 is 2.79 times less risky than HSBC MSCI. It trades about 0.23 of its potential returns per unit of risk. HSBC MSCI China is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  506.00  in HSBC MSCI China on September 3, 2024 and sell it today you would earn a total of  101.00  from holding HSBC MSCI China or generate 19.96% return on investment over 90 days.

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

HSBC SP 500  vs.  HSBC MSCI China

HSBC SP 500

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC SP 500 are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, HSBC SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

HSBC MSCI China

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC MSCI China are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HSBC MSCI sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HSBC SP and HSBC MSCI

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

The idea behind HSBC SP 500 and HSBC MSCI China 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.