Correlation Between HSBC MSCI and Vanguard EUR

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

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

Diversification Opportunities for HSBC MSCI and Vanguard EUR

0.66

Correlation Coefficient

HSBC MSCI  Vanguard EUR

Poor diversification

The 3 months correlation between HSBC and Vanguard is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding HSBC MSCI Japan and Vanguard EUR Eurozone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard EUR Eurozone and HSBC MSCI 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 MSCI Japan are associated (or correlated) with Vanguard EUR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard EUR Eurozone has no effect on the direction of HSBC MSCI i.e., HSBC MSCI and Vanguard EUR go up and down completely randomly.

Pair Corralation between HSBC MSCI and Vanguard EUR

Assuming the 90 days trading horizon HSBC MSCI Japan is expected to generate 2.84 times more return on investment than Vanguard EUR. However, HSBC MSCI is 2.84 times more volatile than Vanguard EUR Eurozone. It trades about -0.01 of its potential returns per unit of risk. Vanguard EUR Eurozone is currently generating about -0.05 per unit of risk. If you would invest  3,768  in HSBC MSCI Japan on December 30, 2024 and sell it today you would lose (36.00) from holding HSBC MSCI Japan or give up 0.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

HSBC MSCI Japan  vs.  Vanguard EUR Eurozone

HSBC MSCI Japan

Risk-Adjusted Performance

Very Weak

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

Vanguard EUR Eurozone

Risk-Adjusted Performance

Very Weak

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

Pair Trading with HSBC MSCI and Vanguard EUR

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

The idea behind HSBC MSCI Japan and Vanguard EUR Eurozone 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.