Correlation Between Intercontinental and CME
Can any of the company-specific risk be diversified away by investing in both Intercontinental 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 Intercontinental and CME into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Intercontinental Exchange and CME Group, you can compare the effects of market volatilities on Intercontinental 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 Intercontinental with a short position of CME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intercontinental and CME.
Diversification Opportunities for Intercontinental and CME
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Intercontinental and CME is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Intercontinental Exchange and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and Intercontinental 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 Intercontinental Exchange 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 Intercontinental i.e., Intercontinental and CME go up and down completely randomly.
Pair Corralation between Intercontinental and CME
Considering the 90-day investment horizon Intercontinental Exchange is expected to generate 0.93 times more return on investment than CME. However, Intercontinental Exchange is 1.07 times less risky than CME. It trades about 0.07 of its potential returns per unit of risk. CME Group is currently generating about 0.05 per unit of risk. If you would invest 12,684 in Intercontinental Exchange on January 26, 2024 and sell it today you would earn a total of 573.00 from holding Intercontinental Exchange or generate 4.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Intercontinental Exchange vs. CME Group
Performance |
| Timeline |
| Intercontinental Exchange |
| CME Group |
Intercontinental and CME Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Intercontinental and CME
The main advantage of trading using opposite Intercontinental and CME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intercontinental 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.| Intercontinental vs. Nasdaq Inc | Intercontinental vs. SP Global | Intercontinental vs. Moodys | Intercontinental vs. FactSet Research Systems |
Check out your portfolio center.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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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