Correlation Between HSBC Holdings and Applied Materials
Can any of the company-specific risk be diversified away by investing in both HSBC Holdings and Applied Materials 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 Applied Materials 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 Applied Materials, you can compare the effects of market volatilities on HSBC Holdings and Applied Materials 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 Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC Holdings and Applied Materials.
Diversification Opportunities for HSBC Holdings and Applied Materials
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between HSBC and Applied is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings plc and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of HSBC Holdings i.e., HSBC Holdings and Applied Materials go up and down completely randomly.
Pair Corralation between HSBC Holdings and Applied Materials
Assuming the 90 days trading horizon HSBC Holdings is expected to generate 1.28 times less return on investment than Applied Materials. But when comparing it to its historical volatility, HSBC Holdings plc is 1.55 times less risky than Applied Materials. It trades about 0.07 of its potential returns per unit of risk. Applied Materials is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 202,216 in Applied Materials on August 30, 2024 and sell it today you would earn a total of 147,139 from holding Applied Materials or generate 72.76% 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. Applied Materials
Performance |
| Timeline |
| HSBC Holdings plc |
| Applied Materials |
HSBC Holdings and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HSBC Holdings and Applied Materials
The main advantage of trading using opposite HSBC Holdings and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HSBC Holdings position performs unexpectedly, Applied Materials 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 Applied Materials will offset losses from the drop in Applied Materials' long position.| HSBC Holdings vs. DXC Technology | HSBC Holdings vs. Southern Copper | HSBC Holdings vs. Grupo Carso SAB | HSBC Holdings vs. Applied Materials |
| Applied Materials vs. The Select Sector | Applied Materials vs. SPDR Series Trust | Applied Materials vs. FibroGen | Applied Materials vs. iShares Trust |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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