Correlation Between Visa and CME

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

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

Diversification Opportunities for Visa and CME

0.87

Correlation Coefficient

Visa  CME

Very poor diversification

The 3 months correlation between Visa and CME is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and Visa 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 Visa Class A 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 Visa i.e., Visa and CME go up and down completely randomly.

Pair Corralation between Visa and CME

Taking into account the 90-day investment horizon Visa is expected to generate 1.02 times less return on investment than CME. But when comparing it to its historical volatility, Visa Class A is 1.17 times less risky than CME. It trades about 0.09 of its potential returns per unit of risk. CME Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  15,246  in CME Group on September 27, 2024 and sell it today you would earn a total of  7,629  from holding CME Group or generate 50.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.61%
Values	Daily Returns

Visa Class A  vs.  CME Group

Visa Class A

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed 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 fragile basic indicators, CME reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and CME

The main advantage of trading using opposite Visa and CME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.