Correlation Between Take-Two Interactive and HSBC Holdings

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

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

Diversification Opportunities for Take-Two Interactive and HSBC Holdings

0.89

Correlation Coefficient

Take-Two Interactive  HSBC Holdings

Very poor diversification

The 3 months correlation between Take-Two and HSBC is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Take Two Interactive Software 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 Take-Two Interactive 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 Take Two Interactive Software 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 Take-Two Interactive i.e., Take-Two Interactive and HSBC Holdings go up and down completely randomly.

Pair Corralation between Take-Two Interactive and HSBC Holdings

Assuming the 90 days horizon Take-Two Interactive is expected to generate 2.22 times less return on investment than HSBC Holdings. In addition to that, Take-Two Interactive is 1.22 times more volatile than HSBC Holdings plc. It trades about 0.09 of its total potential returns per unit of risk. HSBC Holdings plc is currently generating about 0.25 per unit of volatility. If you would invest  911.00  in HSBC Holdings plc on October 9, 2024 and sell it today you would earn a total of  41.00  from holding HSBC Holdings plc or generate 4.5% return on investment over 90 days.

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

Take Two Interactive Software  vs.  HSBC Holdings plc

Take Two Interactive

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Take Two Interactive Software are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Take-Two Interactive reported solid returns over the last few months and may actually be approaching a breakup point.

HSBC Holdings plc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, HSBC Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Take-Two Interactive and HSBC Holdings

The main advantage of trading using opposite Take-Two Interactive and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Take-Two Interactive 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 Take Two Interactive Software 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.