Correlation Between CME and Intercontinental

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

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

Diversification Opportunities for CME and Intercontinental

0.35

Correlation Coefficient

CME  Intercontinental

Weak diversification

The 3 months correlation between CME and Intercontinental is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and Intercontinental Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intercontinental Exchange 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 Intercontinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intercontinental Exchange has no effect on the direction of CME i.e., CME and Intercontinental go up and down completely randomly.

Pair Corralation between CME and Intercontinental

Assuming the 90 days trading horizon CME Group is expected to generate 0.7 times more return on investment than Intercontinental. However, CME Group is 1.43 times less risky than Intercontinental. It trades about 0.2 of its potential returns per unit of risk. Intercontinental Exchange is currently generating about 0.03 per unit of risk. If you would invest  19,434  in CME Group on September 26, 2024 and sell it today you would earn a total of  3,441  from holding CME Group or generate 17.71% return on investment over 90 days.

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

CME Group  vs.  Intercontinental Exchange

CME Group

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 16 (%) 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.

Intercontinental Exchange

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Intercontinental Exchange are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Intercontinental is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CME and Intercontinental

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

The idea behind CME Group and Intercontinental Exchange 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.