Correlation Between ASX and Nasdaq

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

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

Diversification Opportunities for ASX and Nasdaq

0.67

Correlation Coefficient

ASX  Nasdaq

Poor diversification

The 3 months correlation between ASX and Nasdaq is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding ASX LTD UNSPONSADR and Nasdaq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq Inc 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 LTD UNSPONSADR 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 i.e., ASX and Nasdaq go up and down completely randomly.

Pair Corralation between ASX and Nasdaq

Assuming the 90 days trading horizon ASX is expected to generate 2.19 times less return on investment than Nasdaq. But when comparing it to its historical volatility, ASX LTD UNSPONSADR is 1.02 times less risky than Nasdaq. It trades about 0.1 of its potential returns per unit of risk. Nasdaq Inc is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  6,529  in Nasdaq Inc on September 17, 2024 and sell it today you would earn a total of  1,142  from holding Nasdaq Inc or generate 17.49% return on investment over 90 days.

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

ASX LTD UNSPONSADR  vs.  Nasdaq Inc

ASX LTD UNSPONSADR

Risk-Adjusted Performance

7 of 100

OK

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

Nasdaq Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nasdaq reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ASX and Nasdaq

The main advantage of trading using opposite ASX and Nasdaq positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ASX 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 LTD UNSPONSADR 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.