Correlation Between Xtrackers and HSBC SP

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

By analyzing existing cross correlation between Xtrackers II and HSBC SP 500, you can compare the effects of market volatilities on Xtrackers and HSBC SP 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 Xtrackers with a short position of HSBC SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers and HSBC SP.

Diversification Opportunities for Xtrackers and HSBC SP

-0.25

Correlation Coefficient

Xtrackers  HSBC SP

Very good diversification

The 3 months correlation between Xtrackers and HSBC is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers II and HSBC SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC SP 500 and Xtrackers 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 Xtrackers II are associated (or correlated) with HSBC SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC SP 500 has no effect on the direction of Xtrackers i.e., Xtrackers and HSBC SP go up and down completely randomly.

Pair Corralation between Xtrackers and HSBC SP

Assuming the 90 days trading horizon Xtrackers is expected to generate 1.05 times less return on investment than HSBC SP. In addition to that, Xtrackers is 1.78 times more volatile than HSBC SP 500. It trades about 0.06 of its total potential returns per unit of risk. HSBC SP 500 is currently generating about 0.11 per unit of volatility. If you would invest  5,759  in HSBC SP 500 on September 23, 2024 and sell it today you would earn a total of  86.00  from holding HSBC SP 500 or generate 1.49% return on investment over 90 days.

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

Xtrackers II   vs.  HSBC SP 500

Xtrackers II

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers II has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

HSBC SP 500

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, HSBC SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Xtrackers and HSBC SP

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

The idea behind Xtrackers II and HSBC SP 500 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.