Correlation Between CME and TMX Group

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

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

Diversification Opportunities for CME and TMX Group

-0.3

Correlation Coefficient

CME  TMX Group

Very good diversification

The 3 months correlation between CME and TMX is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and TMX Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMX Group Limited 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 TMX Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMX Group Limited has no effect on the direction of CME i.e., CME and TMX Group go up and down completely randomly.

Pair Corralation between CME and TMX Group

Considering the 90-day investment horizon CME Group is expected to generate 1.02 times more return on investment than TMX Group. However, CME is 1.02 times more volatile than TMX Group Limited. It trades about 0.14 of its potential returns per unit of risk. TMX Group Limited is currently generating about -0.01 per unit of risk. If you would invest  21,427  in CME Group on September 30, 2024 and sell it today you would earn a total of  1,923  from holding CME Group or generate 8.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

CME Group  vs.  TMX Group Limited

CME Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 11 (%) 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.

TMX Group Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMX Group Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TMX Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CME and TMX Group

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

The idea behind CME Group and TMX Group Limited 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.

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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 .