Correlation Between HSBC Holdings and Vale SA

Can any of the company-specific risk be diversified away by investing in both HSBC Holdings and Vale SA 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 Vale SA 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 Vale SA, you can compare the effects of market volatilities on HSBC Holdings and Vale SA 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 Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC Holdings and Vale SA.

Diversification Opportunities for HSBC Holdings and Vale SA

-0.5

Correlation Coefficient

HSBC Holdings  Vale SA

Very good diversification

The 3 months correlation between HSBC and Vale is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings plc and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of HSBC Holdings i.e., HSBC Holdings and Vale SA go up and down completely randomly.

Pair Corralation between HSBC Holdings and Vale SA

Assuming the 90 days trading horizon HSBC Holdings plc is expected to generate 1.35 times more return on investment than Vale SA. However, HSBC Holdings is 1.35 times more volatile than Vale SA. It trades about 0.13 of its potential returns per unit of risk. Vale SA is currently generating about -0.19 per unit of risk. If you would invest  76,171  in HSBC Holdings plc on September 27, 2024 and sell it today you would earn a total of  17,329  from holding HSBC Holdings plc or generate 22.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.08%
Values	Daily Returns

HSBC Holdings plc  vs.  Vale SA

HSBC Holdings plc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, HSBC Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with HSBC Holdings and Vale SA

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

The idea behind HSBC Holdings plc and Vale SA 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.