Correlation Between CME and Nasdaq

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

By analyzing existing cross correlation between CME Group and Nasdaq Inc, you can compare the effects of market volatilities on CME and Nasdaq 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 Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of CME and Nasdaq.

Diversification Opportunities for CME and Nasdaq

0.12

Correlation Coefficient

CME  Nasdaq

Average diversification

The 3 months correlation between CME and Nasdaq is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and Nasdaq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq Inc 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 Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq Inc has no effect on the direction of CME i.e., CME and Nasdaq go up and down completely randomly.

Pair Corralation between CME and Nasdaq

Considering the 90-day investment horizon CME Group is expected to under-perform the Nasdaq. But the stock apears to be less risky and, when comparing its historical volatility, CME Group is 1.16 times less risky than Nasdaq. The stock trades about -0.12 of its potential returns per unit of risk. The Nasdaq Inc is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  6,214  in Nasdaq Inc on February 6, 2024 and sell it today you would lose (127.00) from holding Nasdaq Inc or give up 2.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

CME Group  vs.  Nasdaq Inc

CME Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 3 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Nasdaq Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with CME and Nasdaq

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

The idea behind CME Group and Nasdaq Inc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.