Correlation Between ASX Limited and ASX

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

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

Diversification Opportunities for ASX Limited and ASX

0.71

Correlation Coefficient

ASX Limited  ASX

Poor diversification

The 3 months correlation between ASX and ASX is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding ASX Limited ADR and ASX Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASX Limited and ASX Limited 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 ADR are associated (or correlated) with ASX. 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 has no effect on the direction of ASX Limited i.e., ASX Limited and ASX go up and down completely randomly.

Pair Corralation between ASX Limited and ASX

Assuming the 90 days horizon ASX Limited ADR is expected to under-perform the ASX. But the pink sheet apears to be less risky and, when comparing its historical volatility, ASX Limited ADR is 1.68 times less risky than ASX. The pink sheet trades about -0.01 of its potential returns per unit of risk. The ASX Limited is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  4,519  in ASX Limited on October 23, 2024 and sell it today you would lose (489.00) from holding ASX Limited or give up 10.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.7%
Values	Daily Returns

ASX Limited ADR  vs.  ASX Limited

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.

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 latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with ASX Limited and ASX

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

The idea behind ASX Limited ADR and ASX Limited 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.