Correlation Between Visa and HSBC Developed

Can any of the company-specific risk be diversified away by investing in both Visa and HSBC Developed 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 Developed 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 Developed World, you can compare the effects of market volatilities on Visa and HSBC Developed 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 Developed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and HSBC Developed.

Diversification Opportunities for Visa and HSBC Developed

0.88

Correlation Coefficient

Visa  HSBC Developed

Very poor diversification

The 3 months correlation between Visa and HSBC is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and HSBC Developed World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Developed World 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 Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Developed World has no effect on the direction of Visa i.e., Visa and HSBC Developed go up and down completely randomly.

Pair Corralation between Visa and HSBC Developed

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.5 times more return on investment than HSBC Developed. However, Visa is 1.5 times more volatile than HSBC Developed World. It trades about 0.08 of its potential returns per unit of risk. HSBC Developed World is currently generating about 0.1 per unit of risk. If you would invest  21,608  in Visa Class A on October 9, 2024 and sell it today you would earn a total of  9,696  from holding Visa Class A or generate 44.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.61%
Values	Daily Returns

Visa Class A  vs.  HSBC Developed World

Visa Class A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 15 (%) 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 Developed World

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Developed World are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HSBC Developed may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Visa and HSBC Developed

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

The idea behind Visa Class A and HSBC Developed World 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.