Key Takeaways with Craig
In light of vacation schedules, today and tomorrow's InFocus Newsletter will be focused on showcasing valuable tools to enhance your trading strategies. Regular daily commentary recaps will resume on Monday, November 3rd.
Today we will be highlighting The Cross-Asset Correlation Tool, which offers a powerful way to visualize pairwise correlations across the major CME Group benchmark products. Pairwise correlations can be a helpful indicator to identify the degree to which two products are varying similarly over the specified time period, as seen in each box in the chart below.
This tool offers 3 separate views of product correlations. The first calculates the pairwise correlation between the log returns of two benchmark products. The second calculates a correlation of a modified log return of 30-day (1-month) constant maturity implied volatilities for any benchmark pair. And the third calculates the same for 20-day (1-month) realized volatilities between any two products.
It should be noted that correlations do not provide predictive information about relationships. Also, correlations are independent of magnitude—a correlation does not offer insight if two series are varying together with the same size moves, rather just the degree to which they vary together or independently.
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