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
Poor diversification
The 3 months correlation between ASX and CME is 0.74. 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 4.64 times less return on investment than CME. But when comparing it to its historical volatility, ASX Limited is 1.06 times less risky than CME. It trades about 0.04 of its potential returns per unit of risk. CME Group is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 20,397 in CME Group on September 13, 2024 and sell it today you would earn a total of 2,303 from holding CME Group or generate 11.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ASX Limited vs. CME Group
Performance |
| Timeline |
| ASX Limited |
| CME Group |
ASX and CME Volatility Contrast
Predicted Return Density |
| Returns |
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.| ASX vs. CME Group | ASX vs. Intercontinental Exchange | ASX vs. Hong Kong Exchanges | ASX vs. London Stock Exchange |
| CME vs. Playa Hotels Resorts | CME vs. JD SPORTS FASH | CME vs. PLAYSTUDIOS A DL 0001 | CME vs. ANTA SPORTS PRODUCT |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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