Correlation Between SPDR SP and HSBC UK
Can any of the company-specific risk be diversified away by investing in both SPDR SP and HSBC UK 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 SPDR SP and HSBC UK into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 500 and HSBC UK SUS, you can compare the effects of market volatilities on SPDR SP and HSBC UK 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 SPDR SP with a short position of HSBC UK. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and HSBC UK.
Diversification Opportunities for SPDR SP and HSBC UK
Very good diversification
The 3 months correlation between SPDR and HSBC is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and HSBC UK SUS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC UK SUS and SPDR SP 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 SPDR SP 500 are associated (or correlated) with HSBC UK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC UK SUS has no effect on the direction of SPDR SP i.e., SPDR SP and HSBC UK go up and down completely randomly.
Pair Corralation between SPDR SP and HSBC UK
Assuming the 90 days trading horizon SPDR SP 500 is expected to generate 1.19 times more return on investment than HSBC UK. However, SPDR SP is 1.19 times more volatile than HSBC UK SUS. It trades about 0.25 of its potential returns per unit of risk. HSBC UK SUS is currently generating about -0.07 per unit of risk. If you would invest 53,880 in SPDR SP 500 on August 27, 2024 and sell it today you would earn a total of 3,300 from holding SPDR SP 500 or generate 6.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP 500 vs. HSBC UK SUS
Performance |
| Timeline |
| SPDR SP 500 |
| HSBC UK SUS |
SPDR SP and HSBC UK Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and HSBC UK
The main advantage of trading using opposite SPDR SP and HSBC UK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, HSBC UK 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 UK will offset losses from the drop in HSBC UK's long position.The idea behind SPDR SP 500 and HSBC UK SUS 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.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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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