Correlation Between Basic Materials and HSBC Holdings
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials and HSBC Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and HSBC Holdings plc, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of HSBC Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and HSBC Holdings.
Diversification Opportunities for Basic Materials and HSBC Holdings
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Basic and HSBC is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials 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 Basic Materials 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 Basic Materials 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 Basic Materials i.e., Basic Materials and HSBC Holdings go up and down completely randomly.
Pair Corralation between Basic Materials and HSBC Holdings
Assuming the 90 days trading horizon Basic Materials is expected to generate 3.56 times less return on investment than HSBC Holdings. But when comparing it to its historical volatility, Basic Materials is 1.45 times less risky than HSBC Holdings. It trades about 0.09 of its potential returns per unit of risk. HSBC Holdings plc is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 6,286 in HSBC Holdings plc on August 24, 2024 and sell it today you would earn a total of 432.00 from holding HSBC Holdings plc or generate 6.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Basic Materials vs. HSBC Holdings plc
Performance |
| Timeline |
Basic Materials and HSBC Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
HSBC Holdings plc
Pair trading matchups for HSBC Holdings
Pair Trading with Basic Materials and HSBC Holdings
The main advantage of trading using opposite Basic Materials and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.| Basic Materials vs. TAL Education Group | Basic Materials vs. salesforce inc | Basic Materials vs. Apartment Investment and | Basic Materials vs. Bank of America |
| HSBC Holdings vs. T Mobile | HSBC Holdings vs. Monster Beverage | HSBC Holdings vs. Charter Communications | HSBC Holdings vs. The Home Depot |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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