Correlation Between Lumia and HSBC Developed

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

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

Diversification Opportunities for Lumia and HSBC Developed

0.49

Correlation Coefficient

Lumia  HSBC Developed

Very weak diversification

The 3 months correlation between Lumia and HSBC is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and HSBC Developed World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Developed World and Lumia 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 Lumia are associated (or correlated) with HSBC Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Developed World has no effect on the direction of Lumia i.e., Lumia and HSBC Developed go up and down completely randomly.

Pair Corralation between Lumia and HSBC Developed

Assuming the 90 days trading horizon Lumia is expected to under-perform the HSBC Developed. In addition to that, Lumia is 13.43 times more volatile than HSBC Developed World. It trades about -0.27 of its total potential returns per unit of risk. HSBC Developed World is currently generating about 0.23 per unit of volatility. If you would invest  2,334  in HSBC Developed World on October 24, 2024 and sell it today you would earn a total of  45.00  from holding HSBC Developed World or generate 1.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.48%
Values	Daily Returns

Lumia  vs.  HSBC Developed World

Lumia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lumia are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Lumia exhibited solid returns over the last few months and may actually be approaching a breakup point.

HSBC Developed World

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Developed World are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, HSBC Developed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lumia and HSBC Developed

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

The idea behind Lumia and HSBC Developed World 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.