Correlation Between CME and Otc Markets

Can any of the company-specific risk be diversified away by investing in both CME and Otc Markets 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 Otc Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CME Group and Otc Markets Group, you can compare the effects of market volatilities on CME and Otc Markets 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 Otc Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of CME and Otc Markets.

Diversification Opportunities for CME and Otc Markets

0.8

Correlation Coefficient

CME  Otc Markets

Very poor diversification

The 3 months correlation between CME and Otc is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and Otc Markets Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otc Markets Group 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 Otc Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otc Markets Group has no effect on the direction of CME i.e., CME and Otc Markets go up and down completely randomly.

Pair Corralation between CME and Otc Markets

Considering the 90-day investment horizon CME Group is expected to generate 0.57 times more return on investment than Otc Markets. However, CME Group is 1.77 times less risky than Otc Markets. It trades about 0.18 of its potential returns per unit of risk. Otc Markets Group is currently generating about 0.06 per unit of risk. If you would invest  19,313  in CME Group on September 21, 2024 and sell it today you would earn a total of  4,617  from holding CME Group or generate 23.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.21%
Values	Daily Returns

CME Group  vs.  Otc Markets Group

CME Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, CME may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Otc Markets Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Otc Markets Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Otc Markets displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CME and Otc Markets

The main advantage of trading using opposite CME and Otc Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CME position performs unexpectedly, Otc Markets 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 Otc Markets will offset losses from the drop in Otc Markets' long position.

The idea behind CME Group and Otc Markets 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.