Correlation Between HSBC Holdings and A1EN34

Can any of the company-specific risk be diversified away by investing in both HSBC Holdings and A1EN34 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 HSBC Holdings and A1EN34 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HSBC Holdings plc and A1EN34, you can compare the effects of market volatilities on HSBC Holdings and A1EN34 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 HSBC Holdings with a short position of A1EN34. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC Holdings and A1EN34.

Diversification Opportunities for HSBC Holdings and A1EN34

0.82

Correlation Coefficient

HSBC Holdings  A1EN34

Very poor diversification

The 3 months correlation between HSBC and A1EN34 is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings plc and A1EN34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A1EN34 and HSBC Holdings 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 HSBC Holdings plc are associated (or correlated) with A1EN34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A1EN34 has no effect on the direction of HSBC Holdings i.e., HSBC Holdings and A1EN34 go up and down completely randomly.

Pair Corralation between HSBC Holdings and A1EN34

Assuming the 90 days trading horizon HSBC Holdings plc is expected to generate 5.53 times more return on investment than A1EN34. However, HSBC Holdings is 5.53 times more volatile than A1EN34. It trades about 0.06 of its potential returns per unit of risk. A1EN34 is currently generating about -0.03 per unit of risk. If you would invest  3,315  in HSBC Holdings plc on September 28, 2024 and sell it today you would earn a total of  4,293  from holding HSBC Holdings plc or generate 129.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.81%
Values	Daily Returns

HSBC Holdings plc  vs.  A1EN34

HSBC Holdings plc

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HSBC Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

A1EN34

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in A1EN34 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, A1EN34 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HSBC Holdings and A1EN34

The main advantage of trading using opposite HSBC Holdings and A1EN34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HSBC Holdings position performs unexpectedly, A1EN34 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 A1EN34 will offset losses from the drop in A1EN34's long position.

The idea behind HSBC Holdings plc and A1EN34 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.