Correlation Between HSBC Holdings and Svenska Handelsbanken

Can any of the company-specific risk be diversified away by investing in both HSBC Holdings and Svenska Handelsbanken 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 Svenska Handelsbanken 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 Svenska Handelsbanken PK, you can compare the effects of market volatilities on HSBC Holdings and Svenska Handelsbanken 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 Svenska Handelsbanken. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC Holdings and Svenska Handelsbanken.

Diversification Opportunities for HSBC Holdings and Svenska Handelsbanken

-0.6

Correlation Coefficient

HSBC Holdings  Svenska Handelsbanken

Excellent diversification

The 3 months correlation between HSBC and Svenska is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings PLC and Svenska Handelsbanken PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Svenska Handelsbanken 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 Svenska Handelsbanken. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Svenska Handelsbanken has no effect on the direction of HSBC Holdings i.e., HSBC Holdings and Svenska Handelsbanken go up and down completely randomly.

Pair Corralation between HSBC Holdings and Svenska Handelsbanken

Assuming the 90 days horizon HSBC Holdings PLC is expected to generate 0.55 times more return on investment than Svenska Handelsbanken. However, HSBC Holdings PLC is 1.82 times less risky than Svenska Handelsbanken. It trades about 0.2 of its potential returns per unit of risk. Svenska Handelsbanken PK is currently generating about -0.15 per unit of risk. If you would invest  798.00  in HSBC Holdings PLC on February 4, 2024 and sell it today you would earn a total of  62.00  from holding HSBC Holdings PLC or generate 7.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

HSBC Holdings PLC  vs.  Svenska Handelsbanken PK

HSBC Holdings PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, HSBC Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Svenska Handelsbanken

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Svenska Handelsbanken PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Svenska Handelsbanken is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HSBC Holdings and Svenska Handelsbanken

The main advantage of trading using opposite HSBC Holdings and Svenska Handelsbanken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HSBC Holdings position performs unexpectedly, Svenska Handelsbanken 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 Svenska Handelsbanken will offset losses from the drop in Svenska Handelsbanken's long position.

The idea behind HSBC Holdings PLC and Svenska Handelsbanken PK 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.