Correlation Between Algonquin Power and CMS Energy
Can any of the company-specific risk be diversified away by investing in both Algonquin Power and CMS Energy 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 Algonquin Power and CMS Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Algonquin Power Utilities and CMS Energy Corp, you can compare the effects of market volatilities on Algonquin Power and CMS Energy 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 Algonquin Power with a short position of CMS Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algonquin Power and CMS Energy.
Diversification Opportunities for Algonquin Power and CMS Energy
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Algonquin and CMS is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and CMS Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy Corp and Algonquin Power 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 Algonquin Power Utilities are associated (or correlated) with CMS Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMS Energy Corp has no effect on the direction of Algonquin Power i.e., Algonquin Power and CMS Energy go up and down completely randomly.
Pair Corralation between Algonquin Power and CMS Energy
Given the investment horizon of 90 days Algonquin Power Utilities is expected to under-perform the CMS Energy. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 1.42 times less risky than CMS Energy. The stock trades about -0.08 of its potential returns per unit of risk. The CMS Energy Corp is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 2,464 in CMS Energy Corp on September 3, 2024 and sell it today you would lose (10.00) from holding CMS Energy Corp or give up 0.41% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Algonquin Power Utilities vs. CMS Energy Corp
Performance |
| Timeline |
| Algonquin Power Utilities |
| CMS Energy Corp |
Algonquin Power and CMS Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Algonquin Power and CMS Energy
The main advantage of trading using opposite Algonquin Power and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algonquin Power position performs unexpectedly, CMS Energy 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 CMS Energy will offset losses from the drop in CMS Energy's long position.| Algonquin Power vs. CMS Energy Corp | Algonquin Power vs. American Financial Group | Algonquin Power vs. Argo Group 65 | Algonquin Power vs. Aegon Funding |
| CMS Energy vs. CMS Energy Corp | CMS Energy vs. CMS Energy Corp | CMS Energy vs. DTE Energy Co | CMS Energy vs. Duke Energy Corp |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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