Correlation Between Morningstar and CME
Can any of the company-specific risk be diversified away by investing in both Morningstar 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 Morningstar and CME into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morningstar and CME Group, you can compare the effects of market volatilities on Morningstar 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 Morningstar with a short position of CME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar and CME.
Diversification Opportunities for Morningstar and CME
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Morningstar and CME is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and Morningstar 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 Morningstar 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 Morningstar i.e., Morningstar and CME go up and down completely randomly.
Pair Corralation between Morningstar and CME
Given the investment horizon of 90 days Morningstar is expected to generate 1.02 times more return on investment than CME. However, Morningstar is 1.02 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 -0.04 per unit of risk. If you would invest 30,109 in Morningstar on January 25, 2024 and sell it today you would earn a total of 127.00 from holding Morningstar or generate 0.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Morningstar vs. CME Group
Performance |
| Timeline |
| Morningstar |
| CME Group |
Morningstar and CME Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Morningstar and CME
The main advantage of trading using opposite Morningstar and CME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar 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.| Morningstar vs. SP Global | Morningstar vs. Moodys | Morningstar vs. MSCI Inc | Morningstar 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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