Correlation Between Xp and Futu Holdings

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

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

Diversification Opportunities for Xp and Futu Holdings

0.92

Correlation Coefficient

Xp  Futu Holdings

Almost no diversification

The 3 months correlation between Xp and Futu is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Xp Inc and Futu Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Futu Holdings and Xp 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 Xp Inc are associated (or correlated) with Futu Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Futu Holdings has no effect on the direction of Xp i.e., Xp and Futu Holdings go up and down completely randomly.

Pair Corralation between Xp and Futu Holdings

Allowing for the 90-day total investment horizon Xp is expected to generate 1.39 times less return on investment than Futu Holdings. But when comparing it to its historical volatility, Xp Inc is 1.74 times less risky than Futu Holdings. It trades about 0.13 of its potential returns per unit of risk. Futu Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,613  in Futu Holdings on December 26, 2024 and sell it today you would earn a total of  2,186  from holding Futu Holdings or generate 25.38% return on investment over 90 days.

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

Xp Inc  vs.  Futu Holdings

Xp Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xp Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Xp reported solid returns over the last few months and may actually be approaching a breakup point.

Futu Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Futu Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Futu Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xp and Futu Holdings

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

The idea behind Xp Inc and Futu Holdings 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.