Correlation Between CME and Orange SA

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

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

Diversification Opportunities for CME and Orange SA

0.91

Correlation Coefficient

CME  Orange SA

Almost no diversification

The 3 months correlation between CME and Orange is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and Orange SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orange SA 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 Orange SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orange SA has no effect on the direction of CME i.e., CME and Orange SA go up and down completely randomly.

Pair Corralation between CME and Orange SA

Considering the 90-day investment horizon CME is expected to generate 2.1 times less return on investment than Orange SA. But when comparing it to its historical volatility, CME Group is 2.2 times less risky than Orange SA. It trades about 0.21 of its potential returns per unit of risk. Orange SA is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,008  in Orange SA on December 18, 2024 and sell it today you would earn a total of  281.00  from holding Orange SA or generate 27.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	89.83%
Values	Daily Returns

CME Group  vs.  Orange SA

CME Group

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 16 (%) 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.

Orange SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Orange SA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Orange SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CME and Orange SA

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

The idea behind CME Group and Orange SA 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.