Correlation Between HSBC Holdings and Citigroup

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

Diversification Opportunities for HSBC Holdings and Citigroup

0.62
  Correlation Coefficient

Poor diversification

The 3 months correlation between HSBC Holdings and Citigroup is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings PLC and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup 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 Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of HSBC Holdings i.e., HSBC Holdings and Citigroup go up and down completely randomly.

Pair Corralation between HSBC Holdings and Citigroup

Given the investment horizon of 90 days HSBC Holdings PLC is expected to generate 0.96 times more return on investment than Citigroup. However, HSBC Holdings PLC is 1.04 times less risky than Citigroup. It trades about 0.8 of its potential returns per unit of risk. Citigroup is currently generating about 0.65 per unit of risk. If you would invest  3,103  in HSBC Holdings PLC on October 29, 2022 and sell it today you would earn a total of  617.50  from holding HSBC Holdings PLC or generate 19.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

HSBC Holdings PLC  vs.  Citigroup

 Performance (%) 
       Timeline  
HSBC Holdings PLC 
HSBC Holdings Performance
28 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings PLC are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, HSBC Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

HSBC Holdings Price Channel

Citigroup 
Citigroup Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Citigroup sustained solid returns over the last few months and may actually be approaching a breakup point.

Citigroup Price Channel

HSBC Holdings and Citigroup Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HSBC Holdings and Citigroup

The main advantage of trading using opposite HSBC Holdings and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HSBC Holdings position performs unexpectedly, Citigroup 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 Citigroup will offset losses from the drop in Citigroup's long position.
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The idea behind HSBC Holdings PLC and Citigroup 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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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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