Correlation Between ASX Limited and Nasdaq

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

Diversification Opportunities for ASX Limited and Nasdaq

0.11

Correlation Coefficient

ASX Limited  Nasdaq

Average diversification

The 3 months correlation between ASX and Nasdaq is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding ASX Limited ADR and Nasdaq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 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 Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq Inc has no effect on the direction of ASX Limited i.e., ASX Limited and Nasdaq go up and down completely randomly.

Pair Corralation between ASX Limited and Nasdaq

Assuming the 90 days horizon ASX Limited ADR is expected to under-perform the Nasdaq. But the pink sheet apears to be less risky and, when comparing its historical volatility, ASX Limited ADR is 1.09 times less risky than Nasdaq. The pink sheet trades about 0.0 of its potential returns per unit of risk. The Nasdaq Inc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  5,904  in Nasdaq Inc on January 30, 2024 and sell it today you would earn a total of  108.00  from holding Nasdaq Inc or generate 1.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.7%
Values	Daily Returns

ASX Limited ADR  vs.  Nasdaq Inc

ASX Limited ADR

Risk-Adjusted Performance

0 of 100

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.

Nasdaq Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Nasdaq is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ASX Limited and Nasdaq

The main advantage of trading using opposite ASX Limited and Nasdaq positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ASX Limited position performs unexpectedly, Nasdaq 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 Nasdaq will offset losses from the drop in Nasdaq's long position.

The idea behind ASX Limited ADR and Nasdaq 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.

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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.