Correlation Between ASX and Euronext

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

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

Diversification Opportunities for ASX and Euronext

0.46

Correlation Coefficient

ASX  Euronext

Very weak diversification

The 3 months correlation between ASX and Euronext is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding ASX Limited and Euronext NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Euronext NV and ASX 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 are associated (or correlated) with Euronext. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Euronext NV has no effect on the direction of ASX i.e., ASX and Euronext go up and down completely randomly.

Pair Corralation between ASX and Euronext

Assuming the 90 days horizon ASX Limited is expected to under-perform the Euronext. In addition to that, ASX is 1.14 times more volatile than Euronext NV. It trades about -0.15 of its total potential returns per unit of risk. Euronext NV is currently generating about 0.02 per unit of volatility. If you would invest  10,530  in Euronext NV on September 27, 2024 and sell it today you would earn a total of  40.00  from holding Euronext NV or generate 0.38% return on investment over 90 days.

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

ASX Limited  vs.  Euronext NV

ASX Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ASX Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ASX is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Euronext NV

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Euronext NV are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Euronext may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ASX and Euronext

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

The idea behind ASX Limited and Euronext NV 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.