Correlation Between Japan Exchange and CME

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

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

Diversification Opportunities for Japan Exchange and CME

-0.41

Correlation Coefficient

Japan Exchange  CME

Very good diversification

The 3 months correlation between Japan and CME is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Japan Exchange Group and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and Japan Exchange 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 Japan Exchange Group are associated (or correlated) with CME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CME Group has no effect on the direction of Japan Exchange i.e., Japan Exchange and CME go up and down completely randomly.

Pair Corralation between Japan Exchange and CME

Assuming the 90 days horizon Japan Exchange is expected to generate 3.64 times less return on investment than CME. In addition to that, Japan Exchange is 5.31 times more volatile than CME Group. It trades about 0.01 of its total potential returns per unit of risk. CME Group is currently generating about 0.19 per unit of volatility. If you would invest  22,914  in CME Group on December 17, 2024 and sell it today you would earn a total of  2,954  from holding CME Group or generate 12.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.08%
Values	Daily Returns

Japan Exchange Group  vs.  CME Group

Japan Exchange Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Japan Exchange Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Exchange is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CME Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 14 (%) 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.

Pair Trading with Japan Exchange and CME

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

The idea behind Japan Exchange Group and CME Group 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.