Correlation Between Align Technology and HSBC Holdings

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

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

Diversification Opportunities for Align Technology and HSBC Holdings

0.1

Correlation Coefficient

Align Technology  HSBC Holdings

Average diversification

The 3 months correlation between Align and HSBC is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology 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 Align Technology 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 Align Technology 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 Align Technology i.e., Align Technology and HSBC Holdings go up and down completely randomly.

Pair Corralation between Align Technology and HSBC Holdings

Assuming the 90 days horizon Align Technology is expected to generate 9.65 times less return on investment than HSBC Holdings. In addition to that, Align Technology is 1.3 times more volatile than HSBC Holdings plc. It trades about 0.02 of its total potential returns per unit of risk. HSBC Holdings plc is currently generating about 0.19 per unit of volatility. If you would invest  3,876  in HSBC Holdings plc on September 15, 2024 and sell it today you would earn a total of  724.00  from holding HSBC Holdings plc or generate 18.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

Align Technology  vs.  HSBC Holdings plc

Align Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Align Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

HSBC Holdings plc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady fundamental indicators, HSBC Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Align Technology and HSBC Holdings

The main advantage of trading using opposite Align Technology and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Align Technology 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 Align Technology 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.