Correlation Between Japan Exchange and ASX Limited

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

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

Diversification Opportunities for Japan Exchange and ASX Limited

0.47

Correlation Coefficient

Japan Exchange  ASX Limited

Very weak diversification

The 3 months correlation between Japan and ASX is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Japan Exchange 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 Japan Exchange 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 Japan Exchange 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 Japan Exchange i.e., Japan Exchange and ASX Limited go up and down completely randomly.

Pair Corralation between Japan Exchange and ASX Limited

Assuming the 90 days horizon Japan Exchange Group is expected to under-perform the ASX Limited. But the pink sheet apears to be less risky and, when comparing its historical volatility, Japan Exchange Group is 1.04 times less risky than ASX Limited. The pink sheet trades about -0.03 of its potential returns per unit of risk. The ASX Limited ADR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,064  in ASX Limited ADR on December 19, 2024 and sell it today you would earn a total of  119.00  from holding ASX Limited ADR or generate 2.93% return on investment over 90 days.

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

Japan Exchange Group  vs.  ASX Limited ADR

Japan Exchange Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Japan Exchange Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Japan Exchange is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ASX Limited ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ASX Limited ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 Japan Exchange and ASX Limited

The main advantage of trading using opposite Japan Exchange and ASX Limited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Exchange 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 Japan Exchange 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.