Correlation Between Moodys and CME
Can any of the company-specific risk be diversified away by investing in both Moodys 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 Moodys and CME into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Moodys and CME Group, you can compare the effects of market volatilities on Moodys 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 Moodys with a short position of CME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moodys and CME.
Diversification Opportunities for Moodys and CME
Very weak diversification
The 3 months correlation between Moodys and CME is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Moodys and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and Moodys 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 Moodys 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 Moodys i.e., Moodys and CME go up and down completely randomly.
Pair Corralation between Moodys and CME
Considering the 90-day investment horizon Moodys is expected to generate 1.19 times more return on investment than CME. However, Moodys is 1.19 times more volatile than CME Group. It trades about 0.13 of its potential returns per unit of risk. CME Group is currently generating about 0.14 per unit of risk. If you would invest 45,555 in Moodys on November 1, 2024 and sell it today you would earn a total of 4,391 from holding Moodys or generate 9.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Moodys vs. CME Group
Performance |
| Timeline |
| Moodys |
| CME Group |
Moodys and CME Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Moodys and CME
The main advantage of trading using opposite Moodys and CME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moodys 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 Moodys 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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