Correlation Between CME and MSCI

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

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

Diversification Opportunities for CME and MSCI

0.71

Correlation Coefficient

CME  MSCI

Poor diversification

The 3 months correlation between CME and MSCI is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and MSCI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSCI 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSCI Inc has no effect on the direction of CME i.e., CME and MSCI go up and down completely randomly.

Pair Corralation between CME and MSCI

Considering the 90-day investment horizon CME Group is expected to generate 0.73 times more return on investment than MSCI. However, CME Group is 1.36 times less risky than MSCI. It trades about 0.22 of its potential returns per unit of risk. MSCI Inc is currently generating about 0.09 per unit of risk. If you would invest  21,153  in CME Group on September 1, 2024 and sell it today you would earn a total of  2,647  from holding CME Group or generate 12.51% 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.  MSCI Inc

CME Group

Risk-Adjusted Performance

16 of 100

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 may actually be approaching a critical reversion point that can send shares even higher in December 2024.

MSCI Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MSCI Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating fundamental indicators, MSCI may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with CME and MSCI

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

The idea behind CME Group and MSCI 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.