Correlation Between Microsoft and HSBC Holdings
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and HSBC Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and HSBC Holdings PLC, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of HSBC Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and HSBC Holdings.
Diversification Opportunities for Microsoft and HSBC Holdings
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and HSBC is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and HSBC Holdings go up and down completely randomly.
Pair Corralation between Microsoft and HSBC Holdings
Given the investment horizon of 90 days Microsoft is expected to generate 1.06 times less return on investment than HSBC Holdings. But when comparing it to its historical volatility, Microsoft is 1.16 times less risky than HSBC Holdings. It trades about 0.06 of its potential returns per unit of risk. HSBC Holdings PLC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 539.00 in HSBC Holdings PLC on February 4, 2024 and sell it today you would earn a total of 321.00 from holding HSBC Holdings PLC or generate 59.55% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Microsoft vs. HSBC Holdings PLC
Performance |
Timeline |
Microsoft |
HSBC Holdings PLC |
Microsoft and HSBC Holdings Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and HSBC Holdings
The main advantage of trading using opposite Microsoft and HSBC Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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