Correlation Between HSBC SP and ETC Group

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

Diversification Opportunities for HSBC SP and ETC Group

0.97

Correlation Coefficient

HSBC SP  ETC Group

Almost no diversification

The 3 months correlation between HSBC and ETC is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding HSBC SP 500 and ETC Group Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETC Group Global 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 ETC Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETC Group Global has no effect on the direction of HSBC SP i.e., HSBC SP and ETC Group go up and down completely randomly.

Pair Corralation between HSBC SP and ETC Group

Assuming the 90 days trading horizon HSBC SP is expected to generate 2.25 times less return on investment than ETC Group. But when comparing it to its historical volatility, HSBC SP 500 is 1.96 times less risky than ETC Group. It trades about 0.28 of its potential returns per unit of risk. ETC Group Global is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  76,230  in ETC Group Global on April 23, 2025 and sell it today you would earn a total of  28,600  from holding ETC Group Global or generate 37.52% return on investment over 90 days.

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

HSBC SP 500  vs.  ETC Group Global

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 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, HSBC SP unveiled solid returns over the last few months and may actually be approaching a breakup point.

ETC Group Global

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ETC Group Global are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ETC Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HSBC SP and ETC Group

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

The idea behind HSBC SP 500 and ETC Group Global 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.