Correlation Between Morningstar and CME

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

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

Diversification Opportunities for Morningstar and CME

0.75

Correlation Coefficient

Morningstar  CME

Poor diversification

The 3 months correlation between Morningstar and CME is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and Morningstar 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 Morningstar 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 Morningstar i.e., Morningstar and CME go up and down completely randomly.

Pair Corralation between Morningstar and CME

Given the investment horizon of 90 days Morningstar is expected to generate 1.84 times less return on investment than CME. In addition to that, Morningstar is 1.39 times more volatile than CME Group. It trades about 0.06 of its total potential returns per unit of risk. CME Group is currently generating about 0.17 per unit of volatility. If you would invest  21,373  in CME Group on September 19, 2024 and sell it today you would earn a total of  2,335  from holding CME Group or generate 10.92% return on investment over 90 days.

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

Morningstar  vs.  CME Group

Morningstar

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Morningstar is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

CME Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 13 (%) 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.

Pair Trading with Morningstar and CME

The main advantage of trading using opposite Morningstar and CME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar 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 Morningstar 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.