Correlation Between HSBC SP and First Trust

Can any of the company-specific risk be diversified away by investing in both HSBC SP and First Trust 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 SP and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HSBC SP 500 and First Trust Eurozone, you can compare the effects of market volatilities on HSBC SP and First Trust 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 SP with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC SP and First Trust.

Diversification Opportunities for HSBC SP and First Trust

0.66

Correlation Coefficient

HSBC SP  First Trust

Poor diversification

The 3 months correlation between HSBC and First is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding HSBC SP 500 and First Trust Eurozone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Eurozone and HSBC 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 HSBC SP 500 are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Eurozone has no effect on the direction of HSBC SP i.e., HSBC SP and First Trust go up and down completely randomly.

Pair Corralation between HSBC SP and First Trust

Assuming the 90 days trading horizon HSBC SP is expected to generate 1.14 times less return on investment than First Trust. In addition to that, HSBC SP is 1.2 times more volatile than First Trust Eurozone. It trades about 0.26 of its total potential returns per unit of risk. First Trust Eurozone is currently generating about 0.35 per unit of volatility. If you would invest  382,600  in First Trust Eurozone on April 24, 2025 and sell it today you would earn a total of  63,375  from holding First Trust Eurozone or generate 16.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

HSBC SP 500  vs.  First Trust Eurozone

HSBC SP 500

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC SP 500 are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, HSBC SP unveiled solid returns over the last few months and may actually be approaching a breakup point.

First Trust Eurozone

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Eurozone are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, First Trust unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HSBC SP and First Trust

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

The idea behind HSBC SP 500 and First Trust Eurozone 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.