Correlation Between East West and HSBC Holdings
Can any of the company-specific risk be diversified away by investing in both East West 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 East West and HSBC Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between East West Bancorp and HSBC Holdings PLC, you can compare the effects of market volatilities on East West 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 East West with a short position of HSBC Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and HSBC Holdings.
Diversification Opportunities for East West and HSBC Holdings
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between East and HSBC is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp 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 East West 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 East West Bancorp 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 East West i.e., East West and HSBC Holdings go up and down completely randomly.
Pair Corralation between East West and HSBC Holdings
Given the investment horizon of 90 days East West Bancorp is expected to under-perform the HSBC Holdings. In addition to that, East West is 1.43 times more volatile than HSBC Holdings PLC. It trades about -0.16 of its total potential returns per unit of risk. HSBC Holdings PLC is currently generating about 0.16 per unit of volatility. If you would invest 3,906 in HSBC Holdings PLC on January 20, 2024 and sell it today you would earn a total of 146.00 from holding HSBC Holdings PLC or generate 3.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
East West Bancorp vs. HSBC Holdings PLC
Performance |
| Timeline |
| East West Bancorp |
| HSBC Holdings PLC |
East West and HSBC Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East West and HSBC Holdings
The main advantage of trading using opposite East West and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West 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.The idea behind East West Bancorp and HSBC Holdings PLC 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.| HSBC Holdings vs. ING Group NV | HSBC Holdings vs. Natwest Group PLC | HSBC Holdings vs. Banco Santander SA | HSBC Holdings vs. UBS Group AG |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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