Correlation Between Western Midstream and HSBC Holdings

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

By analyzing existing cross correlation between Western Midstream Partners and HSBC Holdings PLC, you can compare the effects of market volatilities on Western Midstream and HSBC Holdings 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 Western Midstream with a short position of HSBC Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Midstream and HSBC Holdings.

Diversification Opportunities for Western Midstream and HSBC Holdings

0.45

Correlation Coefficient

Western Midstream  HSBC Holdings

Very weak diversification

The 3 months correlation between Western and HSBC is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and HSBC Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Holdings PLC and Western Midstream 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 Western Midstream Partners are associated (or correlated) with HSBC Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Holdings PLC has no effect on the direction of Western Midstream i.e., Western Midstream and HSBC Holdings go up and down completely randomly.

Pair Corralation between Western Midstream and HSBC Holdings

Considering the 90-day investment horizon Western Midstream is expected to generate 2.55 times less return on investment than HSBC Holdings. In addition to that, Western Midstream is 1.2 times more volatile than HSBC Holdings PLC. It trades about 0.08 of its total potential returns per unit of risk. HSBC Holdings PLC is currently generating about 0.25 per unit of volatility. If you would invest  4,780  in HSBC Holdings PLC on December 27, 2024 and sell it today you would earn a total of  1,056  from holding HSBC Holdings PLC or generate 22.1% return on investment over 90 days.

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

Western Midstream Partners  vs.  HSBC Holdings PLC

Western Midstream

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Midstream Partners are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Western Midstream may actually be approaching a critical reversion point that can send shares even higher in April 2025.

HSBC Holdings PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings PLC are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental drivers, HSBC Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Midstream and HSBC Holdings

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

The idea behind Western Midstream Partners and HSBC Holdings PLC 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.