Correlation Between Hong Kong and ASX Limited
Can any of the company-specific risk be diversified away by investing in both Hong Kong 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 Hong Kong and ASX Limited into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hong Kong Exchange and ASX Limited ADR, you can compare the effects of market volatilities on Hong Kong 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 Hong Kong with a short position of ASX Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Kong and ASX Limited.
Diversification Opportunities for Hong Kong and ASX Limited
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Hong and ASX is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Hong Kong Exchange 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 Hong Kong 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 Hong Kong Exchange 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 Hong Kong i.e., Hong Kong and ASX Limited go up and down completely randomly.
Pair Corralation between Hong Kong and ASX Limited
Assuming the 90 days horizon Hong Kong Exchange is expected to under-perform the ASX Limited. In addition to that, Hong Kong is 1.66 times more volatile than ASX Limited ADR. It trades about -0.08 of its total potential returns per unit of risk. ASX Limited ADR is currently generating about 0.11 per unit of volatility. If you would invest 3,444 in ASX Limited ADR on January 20, 2024 and sell it today you would earn a total of 593.00 from holding ASX Limited ADR or generate 17.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hong Kong Exchange vs. ASX Limited ADR
Performance |
| Timeline |
| Hong Kong Exchange |
| ASX Limited ADR |
Hong Kong and ASX Limited Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hong Kong and ASX Limited
The main advantage of trading using opposite Hong Kong and ASX Limited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hong Kong 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 Hong Kong Exchange 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
Other Complementary Tools
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Positions Ratings Determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
| Cryptocurrency Center Build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency | |
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal | |
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| ETFs Find actively traded Exchange Traded Funds (ETF) from around the world | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity |