Correlation Between Vanguard USD and HSBC MSCI

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

Diversification Opportunities for Vanguard USD and HSBC MSCI

0.46

Correlation Coefficient

Vanguard USD  HSBC MSCI

Very weak diversification

The 3 months correlation between Vanguard and HSBC is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard USD Treasury 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 USD 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 USD Treasury 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 USD i.e., Vanguard USD and HSBC MSCI go up and down completely randomly.

Pair Corralation between Vanguard USD and HSBC MSCI

Assuming the 90 days trading horizon Vanguard USD is expected to generate 1.94 times less return on investment than HSBC MSCI. But when comparing it to its historical volatility, Vanguard USD Treasury is 2.86 times less risky than HSBC MSCI. It trades about 0.16 of its potential returns per unit of risk. HSBC MSCI Japan is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,676  in HSBC MSCI Japan on September 5, 2024 and sell it today you would earn a total of  262.00  from holding HSBC MSCI Japan or generate 7.13% return on investment over 90 days.

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

Vanguard USD Treasury  vs.  HSBC MSCI Japan

Vanguard USD Treasury

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard USD Treasury are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard USD 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

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC MSCI Japan are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HSBC MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard USD and HSBC MSCI

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