Correlation Between ASX and CME

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

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

Diversification Opportunities for ASX and CME

0.5

Correlation Coefficient

ASX  CME

Very weak diversification

The 3 months correlation between ASX and CME is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding ASX Limited and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group 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 CME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CME Group has no effect on the direction of ASX i.e., ASX and CME go up and down completely randomly.

Pair Corralation between ASX and CME

Assuming the 90 days horizon ASX is expected to generate 373.71 times less return on investment than CME. In addition to that, ASX is 1.03 times more volatile than CME Group. It trades about 0.0 of its total potential returns per unit of risk. CME Group is currently generating about 0.2 per unit of volatility. If you would invest  19,504  in CME Group on September 27, 2024 and sell it today you would earn a total of  3,371  from holding CME Group or generate 17.28% 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.  CME Group

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.

CME Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, CME reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ASX and CME

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

The idea behind ASX Limited and CME Group 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.