Correlation Between Dow Jones and HSBC Holdings
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and HSBC Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and HSBC Holdings PLC, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of HSBC Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and HSBC Holdings.
Diversification Opportunities for Dow Jones and HSBC Holdings
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Dow and HSBC is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial 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 Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and HSBC Holdings go up and down completely randomly.
Pair Corralation between Dow Jones and HSBC Holdings
Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the HSBC Holdings. In addition to that, Dow Jones is 1.01 times more volatile than HSBC Holdings PLC. It trades about -0.23 of its total potential returns per unit of risk. HSBC Holdings PLC is currently generating about 0.38 per unit of volatility. If you would invest 75,000 in HSBC Holdings PLC on October 11, 2024 and sell it today you would earn a total of 4,120 from holding HSBC Holdings PLC or generate 5.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Dow Jones Industrial vs. HSBC Holdings PLC
Performance |
| Timeline |
Dow Jones and HSBC Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
HSBC Holdings PLC
Pair trading matchups for HSBC Holdings
Pair Trading with Dow Jones and HSBC Holdings
The main advantage of trading using opposite Dow Jones and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Thai Beverage PCL | Dow Jones vs. ServiceNow | Dow Jones vs. Loud Beverage Group | Dow Jones vs. Suntory Beverage Food |
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Check out your portfolio center.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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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