Correlation Between HSBC SP and HSBC Developed

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

Diversification Opportunities for HSBC SP and HSBC Developed

0.89

Correlation Coefficient

HSBC SP  HSBC Developed

Very poor diversification

The 3 months correlation between HSBC and HSBC is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding HSBC SP 500 and HSBC Developed World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Developed World 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 Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Developed World has no effect on the direction of HSBC SP i.e., HSBC SP and HSBC Developed go up and down completely randomly.

Pair Corralation between HSBC SP and HSBC Developed

Assuming the 90 days trading horizon HSBC SP is expected to generate 1.25 times less return on investment than HSBC Developed. In addition to that, HSBC SP is 1.55 times more volatile than HSBC Developed World. It trades about 0.12 of its total potential returns per unit of risk. HSBC Developed World is currently generating about 0.23 per unit of volatility. If you would invest  2,334  in HSBC Developed World on October 24, 2024 and sell it today you would earn a total of  45.00  from holding HSBC Developed World or generate 1.93% 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.  HSBC Developed World

HSBC SP 500

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC SP 500 are ranked lower than 11 (%) 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 February 2025.

HSBC Developed World

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Developed World are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, HSBC Developed 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 HSBC Developed

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

The idea behind HSBC SP 500 and HSBC Developed World 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.