Correlation Between HSBC Holdings and Nestl SA
Can any of the company-specific risk be diversified away by investing in both HSBC Holdings and Nestl 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 Nestl 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 Nestl SA, you can compare the effects of market volatilities on HSBC Holdings and Nestl 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 Nestl SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC Holdings and Nestl SA.
Diversification Opportunities for HSBC Holdings and Nestl SA
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between HSBC and Nestl is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings plc and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestl 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 Nestl SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestl SA has no effect on the direction of HSBC Holdings i.e., HSBC Holdings and Nestl SA go up and down completely randomly.
Pair Corralation between HSBC Holdings and Nestl SA
Assuming the 90 days trading horizon HSBC Holdings plc is expected to generate 0.73 times more return on investment than Nestl SA. However, HSBC Holdings plc is 1.36 times less risky than Nestl SA. It trades about 0.28 of its potential returns per unit of risk. Nestl SA is currently generating about 0.14 per unit of risk. If you would invest 4,680 in HSBC Holdings plc on November 1, 2024 and sell it today you would earn a total of 320.00 from holding HSBC Holdings plc or generate 6.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
HSBC Holdings plc vs. Nestl SA
Performance |
| Timeline |
| HSBC Holdings plc |
| Nestl SA |
HSBC Holdings and Nestl SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HSBC Holdings and Nestl SA
The main advantage of trading using opposite HSBC Holdings and Nestl SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HSBC Holdings position performs unexpectedly, Nestl 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 Nestl SA will offset losses from the drop in Nestl SA's long position.| HSBC Holdings vs. Xinhua Winshare Publishing | HSBC Holdings vs. Gol Intelligent Airlines | HSBC Holdings vs. Southwest Airlines Co | HSBC Holdings vs. JAPAN AIRLINES |
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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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