Correlation Between Nasdaq and CME
Can any of the company-specific risk be diversified away by investing in both Nasdaq 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 Nasdaq and CME into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and CME Group, you can compare the effects of market volatilities on Nasdaq 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 Nasdaq with a short position of CME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and CME.
Diversification Opportunities for Nasdaq and CME
Poor diversification
The 3 months correlation between Nasdaq and CME is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and CME go up and down completely randomly.
Pair Corralation between Nasdaq and CME
Assuming the 90 days trading horizon Nasdaq Inc is expected to generate 1.52 times more return on investment than CME. However, Nasdaq is 1.52 times more volatile than CME Group. It trades about 0.4 of its potential returns per unit of risk. CME Group is currently generating about 0.07 per unit of risk. If you would invest 21,540 in Nasdaq Inc on August 28, 2024 and sell it today you would earn a total of 2,172 from holding Nasdaq Inc or generate 10.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq Inc vs. CME Group
Performance |
| Timeline |
| Nasdaq Inc |
| CME Group |
Nasdaq and CME Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq and CME
The main advantage of trading using opposite Nasdaq and CME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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.| Nasdaq vs. G2D Investments | Nasdaq vs. Waste Management | Nasdaq vs. British American Tobacco | Nasdaq vs. TAL Education Group |
| CME vs. BIONTECH SE DRN | CME vs. Automatic Data Processing | CME vs. Micron Technology | CME vs. Taiwan Semiconductor Manufacturing |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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