Correlation Between Wells Fargo and HSBC Holdings
Can any of the company-specific risk be diversified away by investing in both Wells Fargo 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 Wells Fargo and HSBC Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo and HSBC Holdings plc, you can compare the effects of market volatilities on Wells Fargo 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 Wells Fargo with a short position of HSBC Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and HSBC Holdings.
Diversification Opportunities for Wells Fargo and HSBC Holdings
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Wells and HSBC is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo 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 Wells Fargo 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 Wells Fargo 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 Wells Fargo i.e., Wells Fargo and HSBC Holdings go up and down completely randomly.
Pair Corralation between Wells Fargo and HSBC Holdings
Assuming the 90 days trading horizon Wells Fargo is expected to generate 1.22 times more return on investment than HSBC Holdings. However, Wells Fargo is 1.22 times more volatile than HSBC Holdings plc. It trades about 0.08 of its potential returns per unit of risk. HSBC Holdings plc is currently generating about 0.07 per unit of risk. If you would invest 78,688 in Wells Fargo on August 30, 2024 and sell it today you would earn a total of 79,312 from holding Wells Fargo or generate 100.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wells Fargo vs. HSBC Holdings plc
Performance |
| Timeline |
| Wells Fargo |
| HSBC Holdings plc |
Wells Fargo and HSBC Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and HSBC Holdings
The main advantage of trading using opposite Wells Fargo and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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.| Wells Fargo vs. CVS Health | Wells Fargo vs. DXC Technology | Wells Fargo vs. Genworth Financial | Wells Fargo vs. Grupo Carso SAB |
| HSBC Holdings vs. DXC Technology | HSBC Holdings vs. Southern Copper | HSBC Holdings vs. Grupo Carso SAB | HSBC Holdings vs. Applied Materials |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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