Correlation Between CME and Allstate
Can any of the company-specific risk be diversified away by investing in both CME and Allstate 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 Allstate into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CME Group and The Allstate, you can compare the effects of market volatilities on CME and Allstate 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 Allstate. Check out your portfolio center. Please also check ongoing floating volatility patterns of CME and Allstate.
Diversification Opportunities for CME and Allstate
Modest diversification
The 3 months correlation between CME and Allstate is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and The Allstate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allstate 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 Allstate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allstate has no effect on the direction of CME i.e., CME and Allstate go up and down completely randomly.
Pair Corralation between CME and Allstate
Considering the 90-day investment horizon CME is expected to generate 5.94 times less return on investment than Allstate. But when comparing it to its historical volatility, CME Group is 1.01 times less risky than Allstate. It trades about 0.04 of its potential returns per unit of risk. The Allstate is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 12,179 in The Allstate on January 25, 2024 and sell it today you would earn a total of 5,048 from holding The Allstate or generate 41.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CME Group vs. The Allstate
Performance |
| Timeline |
| CME Group |
| Allstate |
CME and Allstate Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CME and Allstate
The main advantage of trading using opposite CME and Allstate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CME position performs unexpectedly, Allstate 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 Allstate will offset losses from the drop in Allstate's long position.The idea behind CME Group and The Allstate 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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