Correlation Between JPMorgan Chase and HSBC Holdings

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

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

Diversification Opportunities for JPMorgan Chase and HSBC Holdings

0.06

Correlation Coefficient

JPMorgan Chase  HSBC Holdings

Significant diversification

The 3 months correlation between JPMorgan and HSBC is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding JPMorgan Chase Co 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 JPMorgan Chase 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 JPMorgan Chase Co 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 JPMorgan Chase i.e., JPMorgan Chase and HSBC Holdings go up and down completely randomly.

Pair Corralation between JPMorgan Chase and HSBC Holdings

Assuming the 90 days trading horizon JPMorgan Chase Co is expected to under-perform the HSBC Holdings. But the preferred stock apears to be less risky and, when comparing its historical volatility, JPMorgan Chase Co is 2.96 times less risky than HSBC Holdings. The preferred stock trades about -0.04 of its potential returns per unit of risk. The HSBC Holdings PLC is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,322  in HSBC Holdings PLC on September 14, 2024 and sell it today you would earn a total of  516.00  from holding HSBC Holdings PLC or generate 11.94% return on investment over 90 days.

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

JPMorgan Chase Co  vs.  HSBC Holdings PLC

JPMorgan Chase

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JPMorgan Chase Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, JPMorgan Chase is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

HSBC Holdings PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental drivers, HSBC Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with JPMorgan Chase and HSBC Holdings

The main advantage of trading using opposite JPMorgan Chase and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JPMorgan Chase 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 JPMorgan Chase Co 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.