Correlation Between ASX Limited and MSCI

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

Diversification Opportunities for ASX Limited and MSCI

-0.01
  Correlation Coefficient

Good diversification

The 3 months correlation between ASX and MSCI is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding ASX Limited ADR and MSCI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSCI Inc 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSCI Inc has no effect on the direction of ASX Limited i.e., ASX Limited and MSCI go up and down completely randomly.

Pair Corralation between ASX Limited and MSCI

Assuming the 90 days horizon ASX Limited ADR is expected to generate 1.12 times more return on investment than MSCI. However, ASX Limited is 1.12 times more volatile than MSCI Inc. It trades about 0.15 of its potential returns per unit of risk. MSCI Inc is currently generating about -0.04 per unit of risk. If you would invest  4,168  in ASX Limited ADR on December 30, 2023 and sell it today you would earn a total of  178.00  from holding ASX Limited ADR or generate 4.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

ASX Limited ADR  vs.  MSCI Inc

 Performance 
       Timeline  
ASX Limited ADR 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in ASX Limited ADR are ranked lower than 2 (%) 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 recent stock price disturbance, may contribute to short-term losses for the investors.
MSCI Inc 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in MSCI Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, MSCI is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

ASX Limited and MSCI Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ASX Limited and MSCI

The main advantage of trading using opposite ASX Limited and MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ASX Limited position performs unexpectedly, MSCI 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 MSCI will offset losses from the drop in MSCI's long position.
The idea behind ASX Limited ADR and MSCI Inc 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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