Correlation Between HSBC Emerging and HSBC SP

Can any of the company-specific risk be diversified away by investing in both HSBC Emerging 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 Emerging 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 Emerging Market and HSBC SP 500, you can compare the effects of market volatilities on HSBC Emerging 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 Emerging with a short position of HSBC SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC Emerging and HSBC SP.

Diversification Opportunities for HSBC Emerging and HSBC SP

0.19

Correlation Coefficient

HSBC Emerging  HSBC SP

Average diversification

The 3 months correlation between HSBC and HSBC is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Emerging Market 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 Emerging 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 Emerging Market 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 Emerging i.e., HSBC Emerging and HSBC SP go up and down completely randomly.

Pair Corralation between HSBC Emerging and HSBC SP

Assuming the 90 days trading horizon HSBC Emerging Market is expected to generate 1.38 times more return on investment than HSBC SP. However, HSBC Emerging is 1.38 times more volatile than HSBC SP 500. It trades about 0.02 of its potential returns per unit of risk. HSBC SP 500 is currently generating about -0.04 per unit of risk. If you would invest  1,531  in HSBC Emerging Market on December 2, 2024 and sell it today you would earn a total of  18.00  from holding HSBC Emerging Market or generate 1.18% return on investment over 90 days.

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

HSBC Emerging Market  vs.  HSBC SP 500

HSBC Emerging Market

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Emerging Market are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, HSBC Emerging is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

HSBC SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days HSBC SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, HSBC SP is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with HSBC Emerging and HSBC SP

The main advantage of trading using opposite HSBC Emerging and HSBC SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HSBC Emerging 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 Emerging Market 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.