Correlation Between Vanguard FTSE and HSBC MSCI

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

By analyzing existing cross correlation between Vanguard FTSE All World and HSBC MSCI Japan, you can compare the effects of market volatilities on Vanguard FTSE and HSBC MSCI 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 Vanguard FTSE with a short position of HSBC MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and HSBC MSCI.

Diversification Opportunities for Vanguard FTSE and HSBC MSCI

0.84

Correlation Coefficient

Vanguard FTSE  HSBC MSCI

Very poor diversification

The 3 months correlation between Vanguard and HSBC is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE All World and HSBC MSCI Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC MSCI Japan and Vanguard FTSE 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 Vanguard FTSE All World are associated (or correlated) with HSBC MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC MSCI Japan has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and HSBC MSCI go up and down completely randomly.

Pair Corralation between Vanguard FTSE and HSBC MSCI

Assuming the 90 days trading horizon Vanguard FTSE All World is expected to generate 0.72 times more return on investment than HSBC MSCI. However, Vanguard FTSE All World is 1.4 times less risky than HSBC MSCI. It trades about 0.09 of its potential returns per unit of risk. HSBC MSCI Japan is currently generating about 0.02 per unit of risk. If you would invest  6,362  in Vanguard FTSE All World on December 27, 2024 and sell it today you would earn a total of  235.00  from holding Vanguard FTSE All World or generate 3.69% return on investment over 90 days.

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

Vanguard FTSE All World  vs.  HSBC MSCI Japan

Vanguard FTSE All

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE All World are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard FTSE is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

HSBC MSCI Japan

Risk-Adjusted Performance

Weak

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

Pair Trading with Vanguard FTSE and HSBC MSCI

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

The idea behind Vanguard FTSE All World and HSBC MSCI Japan 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 Global Correlations module to find global opportunities by holding instruments from different markets.