Correlation Between CME and Compagnie Financière

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

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

Diversification Opportunities for CME and Compagnie Financière

-0.57

Correlation Coefficient

CME  Compagnie Financière

Excellent diversification

The 3 months correlation between CME and Compagnie is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and Compagnie Financire Richemont in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie Financière and CME 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 CME Group are associated (or correlated) with Compagnie Financière. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie Financière has no effect on the direction of CME i.e., CME and Compagnie Financière go up and down completely randomly.

Pair Corralation between CME and Compagnie Financière

Considering the 90-day investment horizon CME Group is expected to generate 0.45 times more return on investment than Compagnie Financière. However, CME Group is 2.24 times less risky than Compagnie Financière. It trades about 0.1 of its potential returns per unit of risk. Compagnie Financire Richemont is currently generating about 0.02 per unit of risk. If you would invest  16,819  in CME Group on February 3, 2025 and sell it today you would earn a total of  11,226  from holding CME Group or generate 66.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	92.53%
Values	Daily Returns

CME Group  vs.  Compagnie Financire Richemont

CME Group

Risk-Adjusted Performance

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. In spite of rather weak primary indicators, CME exhibited solid returns over the last few months and may actually be approaching a breakup point.

Compagnie Financière

Risk-Adjusted Performance

Very Weak

Over the last 90 days Compagnie Financire Richemont has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with CME and Compagnie Financière

The main advantage of trading using opposite CME and Compagnie Financière positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CME position performs unexpectedly, Compagnie Financière 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 Compagnie Financière will offset losses from the drop in Compagnie Financière's long position.

The idea behind CME Group and Compagnie Financire Richemont 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.