Correlation Between Visa and HSBC UK

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

By analyzing existing cross correlation between Visa Class A and HSBC UK SUS, you can compare the effects of market volatilities on Visa and HSBC UK 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 Visa with a short position of HSBC UK. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and HSBC UK.

Diversification Opportunities for Visa and HSBC UK

-0.41

Correlation Coefficient

Visa  HSBC UK

Very good diversification

The 3 months correlation between Visa and HSBC is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and HSBC UK SUS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC UK SUS and Visa 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 Visa Class A are associated (or correlated) with HSBC UK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC UK SUS has no effect on the direction of Visa i.e., Visa and HSBC UK go up and down completely randomly.

Pair Corralation between Visa and HSBC UK

Taking into account the 90-day investment horizon Visa is expected to generate 1.84 times less return on investment than HSBC UK. But when comparing it to its historical volatility, Visa Class A is 4.91 times less risky than HSBC UK. It trades about 0.09 of its potential returns per unit of risk. HSBC UK SUS is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,893  in HSBC UK SUS on September 4, 2024 and sell it today you would earn a total of  312.00  from holding HSBC UK SUS or generate 16.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	80.81%
Values	Daily Returns

Visa Class A  vs.  HSBC UK SUS

Visa Class A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

HSBC UK SUS

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC UK SUS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, HSBC UK is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and HSBC UK

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

The idea behind Visa Class A and HSBC UK SUS 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 Commodity Directory module to find actively traded commodities issued by global exchanges.