Correlation Between CME and SP Global
Can any of the company-specific risk be diversified away by investing in both CME and SP Global 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 CME and SP Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CME Group and SP Global, you can compare the effects of market volatilities on CME and SP Global 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 CME with a short position of SP Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of CME and SP Global.
Diversification Opportunities for CME and SP Global
Modest diversification
The 3 months correlation between CME and SPGI34 is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Global and CME 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 CME Group are associated (or correlated) with SP Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Global has no effect on the direction of CME i.e., CME and SP Global go up and down completely randomly.
Pair Corralation between CME and SP Global
Assuming the 90 days trading horizon CME is expected to generate 1.49 times less return on investment than SP Global. But when comparing it to its historical volatility, CME Group is 1.35 times less risky than SP Global. It trades about 0.15 of its potential returns per unit of risk. SP Global is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 6,336 in SP Global on September 2, 2024 and sell it today you would earn a total of 2,364 from holding SP Global or generate 37.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CME Group vs. SP Global
Performance |
| Timeline |
| CME Group |
| SP Global |
CME and SP Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CME and SP Global
The main advantage of trading using opposite CME and SP Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CME position performs unexpectedly, SP Global 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 SP Global will offset losses from the drop in SP Global's long position.The idea behind CME Group and SP Global 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.| SP Global vs. Southwest Airlines Co | SP Global vs. The Home Depot | SP Global vs. Global X Funds | SP Global vs. Autohome |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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