Correlation Between Federal Home and CME

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

By analyzing existing cross correlation between Federal Home Loan and CME Group, you can compare the effects of market volatilities on Federal Home 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 Federal Home with a short position of CME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Home and CME.

Diversification Opportunities for Federal Home and CME

0.79

Correlation Coefficient

Federal Home  CME

Poor diversification

The 3 months correlation between Federal and CME is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Federal Home Loan and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and Federal Home 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 Federal Home Loan 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 Federal Home i.e., Federal Home and CME go up and down completely randomly.

Pair Corralation between Federal Home and CME

Assuming the 90 days horizon Federal Home Loan is expected to generate 6.1 times more return on investment than CME. However, Federal Home is 6.1 times more volatile than CME Group. It trades about 0.21 of its potential returns per unit of risk. CME Group is currently generating about 0.2 per unit of risk. If you would invest  107.00  in Federal Home Loan on September 27, 2024 and sell it today you would earn a total of  147.00  from holding Federal Home Loan or generate 137.38% return on investment over 90 days.

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

Federal Home Loan  vs.  CME Group

Federal Home Loan

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Home reported solid returns over the last few months and may actually be approaching a breakup point.

CME Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, CME reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Home and CME

The main advantage of trading using opposite Federal Home and CME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Home 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 Federal Home Loan 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.