Correlation Between HSBC Holdings and LPKF Laser

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

By analyzing existing cross correlation between HSBC Holdings PLC and LPKF Laser Electronics, you can compare the effects of market volatilities on HSBC Holdings and LPKF Laser 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 Holdings with a short position of LPKF Laser. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC Holdings and LPKF Laser.

Diversification Opportunities for HSBC Holdings and LPKF Laser

-0.31

Correlation Coefficient

HSBC Holdings  LPKF Laser

Very good diversification

The 3 months correlation between HSBC and LPKF is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings PLC and LPKF Laser Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPKF Laser Electronics and HSBC Holdings 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 Holdings PLC are associated (or correlated) with LPKF Laser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPKF Laser Electronics has no effect on the direction of HSBC Holdings i.e., HSBC Holdings and LPKF Laser go up and down completely randomly.

Pair Corralation between HSBC Holdings and LPKF Laser

Assuming the 90 days trading horizon HSBC Holdings is expected to generate 1.01 times less return on investment than LPKF Laser. But when comparing it to its historical volatility, HSBC Holdings PLC is 3.74 times less risky than LPKF Laser. It trades about 0.41 of its potential returns per unit of risk. LPKF Laser Electronics is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  858.00  in LPKF Laser Electronics on October 4, 2024 and sell it today you would earn a total of  42.00  from holding LPKF Laser Electronics or generate 4.9% return on investment over 90 days.

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

HSBC Holdings PLC  vs.  LPKF Laser Electronics

HSBC Holdings PLC

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings PLC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, HSBC Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

LPKF Laser Electronics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LPKF Laser Electronics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, LPKF Laser is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with HSBC Holdings and LPKF Laser

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

The idea behind HSBC Holdings PLC and LPKF Laser Electronics 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.