Correlation Between Invitation Homes and HSBC Holdings

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Can any of the company-specific risk be diversified away by investing in both Invitation Homes and HSBC Holdings 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 Invitation Homes and HSBC Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invitation Homes and HSBC Holdings plc, you can compare the effects of market volatilities on Invitation Homes and HSBC Holdings 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 Invitation Homes with a short position of HSBC Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invitation Homes and HSBC Holdings.

Diversification Opportunities for Invitation Homes and HSBC Holdings

0.15
  Correlation Coefficient

Average diversification

The 3 months correlation between Invitation and HSBC is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Invitation Homes and HSBC Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Holdings plc and Invitation Homes 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 Invitation Homes are associated (or correlated) with HSBC Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Holdings plc has no effect on the direction of Invitation Homes i.e., Invitation Homes and HSBC Holdings go up and down completely randomly.

Pair Corralation between Invitation Homes and HSBC Holdings

Assuming the 90 days trading horizon Invitation Homes is expected to under-perform the HSBC Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Invitation Homes is 3.52 times less risky than HSBC Holdings. The stock trades about -0.45 of its potential returns per unit of risk. The HSBC Holdings plc is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  7,693  in HSBC Holdings plc on October 25, 2024 and sell it today you would lose (107.00) from holding HSBC Holdings plc or give up 1.39% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy27.78%
ValuesDaily Returns

Invitation Homes  vs.  HSBC Holdings plc

 Performance 
       Timeline  
Invitation Homes 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Invitation Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Invitation Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
HSBC Holdings plc 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HSBC Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Invitation Homes and HSBC Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Invitation Homes and HSBC Holdings

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

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