Correlation Between HSBC Holdings and Alphabet

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

Diversification Opportunities for HSBC Holdings and Alphabet

0.53

Correlation Coefficient

HSBC Holdings  Alphabet

Very weak diversification

The 3 months correlation between HSBC and Alphabet is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings PLC and Alphabet Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of HSBC Holdings i.e., HSBC Holdings and Alphabet go up and down completely randomly.

Pair Corralation between HSBC Holdings and Alphabet

Assuming the 90 days trading horizon HSBC Holdings PLC is expected to generate 0.43 times more return on investment than Alphabet. However, HSBC Holdings PLC is 2.34 times less risky than Alphabet. It trades about 0.32 of its potential returns per unit of risk. Alphabet Class A is currently generating about 0.14 per unit of risk. If you would invest  66,647  in HSBC Holdings PLC on October 12, 2024 and sell it today you would earn a total of  13,603  from holding HSBC Holdings PLC or generate 20.41% return on investment over 90 days.

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

HSBC Holdings PLC  vs.  Alphabet Class A

HSBC Holdings PLC

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings PLC are ranked lower than 25 (%) 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.

Alphabet Class A

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Alphabet unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HSBC Holdings and Alphabet

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

The idea behind HSBC Holdings PLC and Alphabet Class A 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.