Correlation Between CMS Energy and Algonquin Power
Can any of the company-specific risk be diversified away by investing in both CMS Energy and Algonquin Power 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 CMS Energy and Algonquin Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CMS Energy and Algonquin Power Utilities, you can compare the effects of market volatilities on CMS Energy and Algonquin Power 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 CMS Energy with a short position of Algonquin Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and Algonquin Power.
Diversification Opportunities for CMS Energy and Algonquin Power
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between CMS and Algonquin is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities and CMS Energy 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 CMS Energy are associated (or correlated) with Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of CMS Energy i.e., CMS Energy and Algonquin Power go up and down completely randomly.
Pair Corralation between CMS Energy and Algonquin Power
Assuming the 90 days trading horizon CMS Energy is expected to generate 1.74 times less return on investment than Algonquin Power. But when comparing it to its historical volatility, CMS Energy is 1.86 times less risky than Algonquin Power. It trades about 0.03 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 447.00 in Algonquin Power Utilities on November 9, 2024 and sell it today you would earn a total of 3.00 from holding Algonquin Power Utilities or generate 0.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
CMS Energy vs. Algonquin Power Utilities
Performance |
| Timeline |
| CMS Energy |
| Algonquin Power Utilities |
CMS Energy and Algonquin Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CMS Energy and Algonquin Power
The main advantage of trading using opposite CMS Energy and Algonquin Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMS Energy position performs unexpectedly, Algonquin Power 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 Algonquin Power will offset losses from the drop in Algonquin Power's long position.| CMS Energy vs. Entergy Texas | CMS Energy vs. Duke Energy | CMS Energy vs. Spire Inc | CMS Energy vs. Consumers Energy |
| Algonquin Power vs. Brookfield Renewable Corp | Algonquin Power vs. Nextera Energy Partners | Algonquin Power vs. Clearway Energy Class | Algonquin Power vs. Clearway Energy |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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