Correlation Between Euronext and CME

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Can any of the company-specific risk be diversified away by investing in both Euronext 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 Euronext and CME into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Euronext NV and CME Group, you can compare the effects of market volatilities on Euronext 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 Euronext with a short position of CME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Euronext and CME.

Diversification Opportunities for Euronext and CME

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Euronext and CME is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Euronext NV and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and Euronext 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 Euronext NV 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 Euronext i.e., Euronext and CME go up and down completely randomly.

Pair Corralation between Euronext and CME

Assuming the 90 days horizon Euronext NV is expected to generate 1.86 times more return on investment than CME. However, Euronext is 1.86 times more volatile than CME Group. It trades about 0.02 of its potential returns per unit of risk. CME Group is currently generating about 0.0 per unit of risk. If you would invest  8,427  in Euronext NV on December 30, 2023 and sell it today you would earn a total of  890.00  from holding Euronext NV or generate 10.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy98.18%
ValuesDaily Returns

Euronext NV  vs.  CME Group

 Performance 
       Timeline  
Euronext NV 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Euronext NV are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Euronext is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.
CME Group 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, CME is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Euronext and CME Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Euronext and CME

The main advantage of trading using opposite Euronext and CME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Euronext 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 Euronext NV 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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