Correlation Between Moodys and ASX Limited

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Can any of the company-specific risk be diversified away by investing in both Moodys 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 Moodys and ASX Limited into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Moodys and ASX Limited ADR, you can compare the effects of market volatilities on Moodys 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 Moodys with a short position of ASX Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moodys and ASX Limited.

Diversification Opportunities for Moodys and ASX Limited

0.3
  Correlation Coefficient

Weak diversification

The 3 months correlation between Moodys and ASX is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Moodys 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 Moodys 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 Moodys 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 Moodys i.e., Moodys and ASX Limited go up and down completely randomly.

Pair Corralation between Moodys and ASX Limited

Considering the 90-day investment horizon Moodys is expected to generate 1.25 times less return on investment than ASX Limited. But when comparing it to its historical volatility, Moodys is 1.48 times less risky than ASX Limited. It trades about 0.17 of its potential returns per unit of risk. ASX Limited ADR is currently generating about 0.15 of returns per unit of risk over similar time horizon. 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 Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Moodys  vs.  ASX Limited ADR

 Performance 
       Timeline  
Moodys 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Moodys are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Moodys is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.
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.

Moodys and ASX Limited Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Moodys and ASX Limited

The main advantage of trading using opposite Moodys and ASX Limited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moodys 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 Moodys 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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