Correlation Between CME and ASX Limited

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

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

Diversification Opportunities for CME and ASX Limited

0.09

Correlation Coefficient

CME  ASX Limited

Significant diversification

The 3 months correlation between CME and ASX is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding CME Group 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 CME 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 CME Group 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 CME i.e., CME and ASX Limited go up and down completely randomly.

Pair Corralation between CME and ASX Limited

Considering the 90-day investment horizon CME Group is expected to generate 0.71 times more return on investment than ASX Limited. However, CME Group is 1.4 times less risky than ASX Limited. It trades about 0.21 of its potential returns per unit of risk. ASX Limited ADR is currently generating about -0.03 per unit of risk. If you would invest  22,914  in CME Group on December 17, 2024 and sell it today you would earn a total of  3,444  from holding CME Group or generate 15.03% return on investment over 90 days.

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

CME Group  vs.  ASX Limited ADR

CME Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, CME exhibited solid returns over the last few months and may actually be approaching a breakup point.

ASX Limited ADR

Risk-Adjusted Performance

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 fairly strong technical and fundamental indicators, ASX Limited is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CME and ASX Limited

The main advantage of trading using opposite CME and ASX Limited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CME 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 CME Group 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.

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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.