Correlation Between London Stock and CME
Can any of the company-specific risk be diversified away by investing in both London Stock 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 London Stock and CME into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between London Stock Exchange and CME Group, you can compare the effects of market volatilities on London Stock 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 London Stock with a short position of CME. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Stock and CME.
Diversification Opportunities for London Stock and CME
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between London and CME is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding London Stock Exchange and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and London Stock 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 London Stock 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 London Stock i.e., London Stock and CME go up and down completely randomly.
Pair Corralation between London Stock and CME
Assuming the 90 days horizon London Stock Exchange is expected to under-perform the CME. In addition to that, London Stock is 1.16 times more volatile than CME Group. It trades about -0.22 of its total potential returns per unit of risk. CME Group is currently generating about -0.08 per unit of volatility. If you would invest 21,362 in CME Group on January 20, 2024 and sell it today you would lose (397.00) from holding CME Group or give up 1.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
London Stock Exchange vs. CME Group
Performance |
| Timeline |
| London Stock Exchange |
| CME Group |
London Stock and CME Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with London Stock and CME
The main advantage of trading using opposite London Stock and CME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Stock 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 London Stock Exchange 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.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 CEOs Directory module to screen CEOs from public companies around the world.
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