Correlation Between CME and Euronext
Can any of the company-specific risk be diversified away by investing in both CME 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 CME and Euronext into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CME Group and Euronext NV, you can compare the effects of market volatilities on CME 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 CME with a short position of Euronext. Check out your portfolio center. Please also check ongoing floating volatility patterns of CME and Euronext.
Diversification Opportunities for CME and Euronext
Weak diversification
The 3 months correlation between CME and Euronext is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and Euronext NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Euronext NV 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 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 CME i.e., CME and Euronext go up and down completely randomly.
Pair Corralation between CME and Euronext
Considering the 90-day investment horizon CME is expected to generate 2.25 times less return on investment than Euronext. But when comparing it to its historical volatility, CME Group is 1.41 times less risky than Euronext. It trades about 0.08 of its potential returns per unit of risk. Euronext NV is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 6,850 in Euronext NV on August 31, 2024 and sell it today you would earn a total of 4,050 from holding Euronext NV or generate 59.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 68.18% |
| Values | Daily Returns |
CME Group vs. Euronext NV
Performance |
| Timeline |
| CME Group |
| Euronext NV |
CME and Euronext Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CME and Euronext
The main advantage of trading using opposite CME and Euronext positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CME 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 CME Group 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.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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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