Correlation Between Euronext and CME
Can any of the company-specific risk be diversified away by investing in both Euronext 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 Euronext and CME into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Euronext NV and CME Group, you can compare the effects of market volatilities on Euronext 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 Euronext with a short position of CME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Euronext and CME.
Diversification Opportunities for Euronext and CME
Weak diversification
The 3 months correlation between Euronext and CME is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Euronext NV and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and Euronext 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 Euronext NV 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 Euronext i.e., Euronext and CME go up and down completely randomly.
Pair Corralation between Euronext and CME
Assuming the 90 days horizon Euronext NV is expected to under-perform the CME. But the pink sheet apears to be less risky and, when comparing its historical volatility, Euronext NV is 1.8 times less risky than CME. The pink sheet trades about -0.17 of its potential returns per unit of risk. The CME Group is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 22,726 in CME Group on August 31, 2024 and sell it today you would earn a total of 1,007 from holding CME Group or generate 4.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Euronext NV vs. CME Group
Performance |
| Timeline |
| Euronext NV |
| CME Group |
Euronext and CME Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Euronext and CME
The main advantage of trading using opposite Euronext and CME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Euronext 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 Euronext NV 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.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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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