Correlation Between UBS Group and HSBC Holdings

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

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

Diversification Opportunities for UBS Group and HSBC Holdings

0.56

Correlation Coefficient

UBS Group  HSBC Holdings

Very weak diversification

The 3 months correlation between UBS and HSBC is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding UBS Group AG 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 UBS Group 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 UBS Group AG 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 UBS Group i.e., UBS Group and HSBC Holdings go up and down completely randomly.

Pair Corralation between UBS Group and HSBC Holdings

Considering the 90-day investment horizon UBS Group is expected to generate 2.49 times less return on investment than HSBC Holdings. In addition to that, UBS Group is 1.16 times more volatile than HSBC Holdings PLC. It trades about 0.03 of its total potential returns per unit of risk. HSBC Holdings PLC is currently generating about 0.08 per unit of volatility. If you would invest  4,399  in HSBC Holdings PLC on August 30, 2024 and sell it today you would earn a total of  269.00  from holding HSBC Holdings PLC or generate 6.12% return on investment over 90 days.

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

UBS Group AG  vs.  HSBC Holdings PLC

UBS Group AG

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UBS Group AG are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, UBS Group is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

HSBC Holdings PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental drivers, HSBC Holdings may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with UBS Group and HSBC Holdings

The main advantage of trading using opposite UBS Group and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UBS Group 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 UBS Group AG 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 Transaction History module to view history of all your transactions and understand their impact on performance.