Correlation Between Renesas Electronics and HSBC Holdings

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

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

Diversification Opportunities for Renesas Electronics and HSBC Holdings

0.62

Correlation Coefficient

Renesas Electronics  HSBC Holdings

Poor diversification

The 3 months correlation between Renesas and HSBC is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics 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 Renesas Electronics 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 Renesas Electronics 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 Renesas Electronics i.e., Renesas Electronics and HSBC Holdings go up and down completely randomly.

Pair Corralation between Renesas Electronics and HSBC Holdings

Assuming the 90 days horizon Renesas Electronics is expected to generate 1.26 times less return on investment than HSBC Holdings. In addition to that, Renesas Electronics is 1.97 times more volatile than HSBC Holdings plc. It trades about 0.08 of its total potential returns per unit of risk. HSBC Holdings plc is currently generating about 0.2 per unit of volatility. If you would invest  887.00  in HSBC Holdings plc on December 20, 2024 and sell it today you would earn a total of  199.00  from holding HSBC Holdings plc or generate 22.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Renesas Electronics  vs.  HSBC Holdings plc

Renesas Electronics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Renesas Electronics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Renesas Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

HSBC Holdings plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental indicators, HSBC Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Renesas Electronics and HSBC Holdings

The main advantage of trading using opposite Renesas Electronics and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Renesas Electronics 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 Renesas Electronics 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.