Correlation Between HSBC SP and SPDR Barclays

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

Diversification Opportunities for HSBC SP and SPDR Barclays

0.86

Correlation Coefficient

HSBC SP  SPDR Barclays

Very poor diversification

The 3 months correlation between HSBC and SPDR is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding HSBC SP 500 and SPDR Barclays Euro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Barclays Euro 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 SPDR Barclays. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Barclays Euro has no effect on the direction of HSBC SP i.e., HSBC SP and SPDR Barclays go up and down completely randomly.

Pair Corralation between HSBC SP and SPDR Barclays

Assuming the 90 days trading horizon HSBC SP 500 is expected to generate 0.56 times more return on investment than SPDR Barclays. However, HSBC SP 500 is 1.8 times less risky than SPDR Barclays. It trades about 0.13 of its potential returns per unit of risk. SPDR Barclays Euro is currently generating about 0.03 per unit of risk. If you would invest  3,555  in HSBC SP 500 on September 14, 2024 and sell it today you would earn a total of  2,303  from holding HSBC SP 500 or generate 64.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.82%
Values	Daily Returns

HSBC SP 500  vs.  SPDR Barclays Euro

HSBC SP 500

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC SP 500 are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, HSBC SP sustained solid returns over the last few months and may actually be approaching a breakup point.

SPDR Barclays Euro

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Barclays Euro are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, SPDR Barclays is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HSBC SP and SPDR Barclays

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

The idea behind HSBC SP 500 and SPDR Barclays Euro 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.