Correlation Between ASX and ASX Limited

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

By analyzing existing cross correlation between ASX Limited and ASX Limited ADR, you can compare the effects of market volatilities on ASX and ASX Limited 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 ASX with a short position of ASX Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASX and ASX Limited.

Diversification Opportunities for ASX and ASX Limited

0.62

Correlation Coefficient

ASX  ASX Limited

Poor diversification

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

Pair Corralation between ASX and ASX Limited

Assuming the 90 days horizon ASX Limited is expected to generate 1.95 times more return on investment than ASX Limited. However, ASX is 1.95 times more volatile than ASX Limited ADR. It trades about -0.01 of its potential returns per unit of risk. ASX Limited ADR is currently generating about -0.47 per unit of risk. If you would invest  4,086  in ASX Limited on October 9, 2024 and sell it today you would lose (35.00) from holding ASX Limited or give up 0.86% of portfolio value over 90 days.

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

ASX Limited  vs.  ASX Limited ADR

ASX Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ASX Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, ASX is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ASX Limited ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ASX Limited ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with ASX and ASX Limited

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

The idea behind ASX Limited and ASX Limited ADR 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.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.