Correlation Between HSBC SP and BNP Paribas

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

Diversification Opportunities for HSBC SP and BNP Paribas

0.87

Correlation Coefficient

HSBC SP  BNP Paribas

Very poor diversification

The 3 months correlation between HSBC and BNP is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding HSBC SP 500 and BNP Paribas Easy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNP Paribas Easy 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 BNP Paribas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNP Paribas Easy has no effect on the direction of HSBC SP i.e., HSBC SP and BNP Paribas go up and down completely randomly.

Pair Corralation between HSBC SP and BNP Paribas

Assuming the 90 days trading horizon HSBC SP 500 is expected to generate 4.78 times more return on investment than BNP Paribas. However, HSBC SP is 4.78 times more volatile than BNP Paribas Easy. It trades about 0.29 of its potential returns per unit of risk. BNP Paribas Easy is currently generating about 0.19 per unit of risk. If you would invest  5,651  in HSBC SP 500 on September 17, 2024 and sell it today you would earn a total of  204.00  from holding HSBC SP 500 or generate 3.61% return on investment over 90 days.

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

HSBC SP 500  vs.  BNP Paribas Easy

HSBC SP 500

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC SP 500 are ranked lower than 20 (%) 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.

BNP Paribas Easy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BNP Paribas Easy are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, BNP Paribas is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with HSBC SP and BNP Paribas

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

The idea behind HSBC SP 500 and BNP Paribas Easy 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.