Correlation Between CME and JSE

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

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

Diversification Opportunities for CME and JSE

0.6

Correlation Coefficient

CME  JSE

Poor diversification

The 3 months correlation between CME and JSE is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and JSE Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSE Limited 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 JSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSE Limited has no effect on the direction of CME i.e., CME and JSE go up and down completely randomly.

Pair Corralation between CME and JSE

Considering the 90-day investment horizon CME is expected to generate 1.28 times less return on investment than JSE. But when comparing it to its historical volatility, CME Group is 2.19 times less risky than JSE. It trades about 0.17 of its potential returns per unit of risk. JSE Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  520.00  in JSE Limited on September 25, 2024 and sell it today you would earn a total of  145.00  from holding JSE Limited or generate 27.88% return on investment over 90 days.

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

CME Group  vs.  JSE Limited

CME Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, CME may actually be approaching a critical reversion point that can send shares even higher in January 2025.

JSE Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in JSE Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking indicators, JSE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CME and JSE

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

The idea behind CME Group and JSE Limited 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .