Correlation Between Vanguard Funds and HSBC MSCI

Can any of the company-specific risk be diversified away by investing in both Vanguard Funds 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 Funds 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 Funds Public and HSBC MSCI World, you can compare the effects of market volatilities on Vanguard Funds 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 Funds with a short position of HSBC MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Funds and HSBC MSCI.

Diversification Opportunities for Vanguard Funds and HSBC MSCI

0.73

Correlation Coefficient

Vanguard Funds  HSBC MSCI

Poor diversification

The 3 months correlation between Vanguard and HSBC is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Funds Public and HSBC MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC MSCI World and Vanguard Funds 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 Funds Public 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 World has no effect on the direction of Vanguard Funds i.e., Vanguard Funds and HSBC MSCI go up and down completely randomly.

Pair Corralation between Vanguard Funds and HSBC MSCI

Assuming the 90 days trading horizon Vanguard Funds Public is expected to generate 1.13 times more return on investment than HSBC MSCI. However, Vanguard Funds is 1.13 times more volatile than HSBC MSCI World. It trades about -0.13 of its potential returns per unit of risk. HSBC MSCI World is currently generating about -0.2 per unit of risk. If you would invest  10,898  in Vanguard Funds Public on October 4, 2024 and sell it today you would lose (148.00) from holding Vanguard Funds Public or give up 1.36% of portfolio value over 90 days.

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

Vanguard Funds Public  vs.  HSBC MSCI World

Vanguard Funds Public

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Funds Public are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Vanguard Funds may actually be approaching a critical reversion point that can send shares even higher in February 2025.

HSBC MSCI World

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC MSCI World are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward-looking indicators, HSBC MSCI may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Vanguard Funds and HSBC MSCI

The main advantage of trading using opposite Vanguard Funds and HSBC MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Funds 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 Funds Public and HSBC MSCI 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.