Correlation Between Metalrgica Riosulense and HSBC Holdings

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

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

Diversification Opportunities for Metalrgica Riosulense and HSBC Holdings

-0.92

Correlation Coefficient

Metalrgica Riosulense  HSBC Holdings

Pay attention - limited upside

The 3 months correlation between Metalrgica and HSBC is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding Metalrgica Riosulense SA 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 Metalrgica Riosulense 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 Metalrgica Riosulense SA 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 Metalrgica Riosulense i.e., Metalrgica Riosulense and HSBC Holdings go up and down completely randomly.

Pair Corralation between Metalrgica Riosulense and HSBC Holdings

Assuming the 90 days trading horizon Metalrgica Riosulense SA is expected to generate 1.4 times more return on investment than HSBC Holdings. However, Metalrgica Riosulense is 1.4 times more volatile than HSBC Holdings plc. It trades about 0.14 of its potential returns per unit of risk. HSBC Holdings plc is currently generating about 0.15 per unit of risk. If you would invest  5,250  in Metalrgica Riosulense SA on October 11, 2024 and sell it today you would earn a total of  250.00  from holding Metalrgica Riosulense SA or generate 4.76% return on investment over 90 days.

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

Metalrgica Riosulense SA  vs.  HSBC Holdings plc

Metalrgica Riosulense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metalrgica Riosulense SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Preferred Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

HSBC Holdings plc

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 21 (%) 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.

Pair Trading with Metalrgica Riosulense and HSBC Holdings

The main advantage of trading using opposite Metalrgica Riosulense and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metalrgica Riosulense 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 Metalrgica Riosulense SA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.