Correlation Between HSBC MSCI and HSBC SP

Can any of the company-specific risk be diversified away by investing in both HSBC MSCI and HSBC SP 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 MSCI and HSBC SP into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HSBC MSCI WORLD and HSBC SP 500, you can compare the effects of market volatilities on HSBC MSCI and HSBC SP 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 MSCI with a short position of HSBC SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC MSCI and HSBC SP.

Diversification Opportunities for HSBC MSCI and HSBC SP

0.98

Correlation Coefficient

HSBC MSCI  HSBC SP

Almost no diversification

The 3 months correlation between HSBC and HSBC is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding HSBC MSCI WORLD and HSBC SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC SP 500 and HSBC MSCI 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 MSCI WORLD are associated (or correlated) with HSBC SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC SP 500 has no effect on the direction of HSBC MSCI i.e., HSBC MSCI and HSBC SP go up and down completely randomly.

Pair Corralation between HSBC MSCI and HSBC SP

Assuming the 90 days trading horizon HSBC MSCI is expected to generate 1.17 times less return on investment than HSBC SP. But when comparing it to its historical volatility, HSBC MSCI WORLD is 1.17 times less risky than HSBC SP. It trades about 0.12 of its potential returns per unit of risk. HSBC SP 500 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,630  in HSBC SP 500 on October 4, 2024 and sell it today you would earn a total of  2,148  from holding HSBC SP 500 or generate 59.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.8%
Values	Daily Returns

HSBC MSCI WORLD  vs.  HSBC SP 500

HSBC MSCI WORLD

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC MSCI WORLD are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, HSBC MSCI may actually be approaching a critical reversion point that can send shares even higher in February 2025.

HSBC SP 500

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC SP 500 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, HSBC SP may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with HSBC MSCI and HSBC SP

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

The idea behind HSBC MSCI WORLD and HSBC SP 500 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.