Correlation Between HSBC Holdings and Monks Investment

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

Diversification Opportunities for HSBC Holdings and Monks Investment

0.9

Correlation Coefficient

HSBC Holdings  Monks Investment

Almost no diversification

The 3 months correlation between HSBC and Monks is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings PLC and Monks Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monks Investment Trust 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 Monks Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monks Investment Trust has no effect on the direction of HSBC Holdings i.e., HSBC Holdings and Monks Investment go up and down completely randomly.

Pair Corralation between HSBC Holdings and Monks Investment

Assuming the 90 days trading horizon HSBC Holdings PLC is expected to generate 0.77 times more return on investment than Monks Investment. However, HSBC Holdings PLC is 1.31 times less risky than Monks Investment. It trades about 0.32 of its potential returns per unit of risk. Monks Investment Trust is currently generating about -0.08 per unit of risk. If you would invest  73,370  in HSBC Holdings PLC on September 24, 2024 and sell it today you would earn a total of  3,140  from holding HSBC Holdings PLC or generate 4.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

HSBC Holdings PLC  vs.  Monks Investment Trust

HSBC Holdings PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, HSBC Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Monks Investment Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monks Investment Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Monks Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HSBC Holdings and Monks Investment

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

The idea behind HSBC Holdings PLC and Monks Investment Trust 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..