Correlation Between CMS Energy and Northwest Natural
Can any of the company-specific risk be diversified away by investing in both CMS Energy and Northwest Natural 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 Northwest Natural into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CMS Energy and Northwest Natural Gas, you can compare the effects of market volatilities on CMS Energy and Northwest Natural 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 Northwest Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and Northwest Natural.
Diversification Opportunities for CMS Energy and Northwest Natural
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between CMS and Northwest is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Northwest Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Natural Gas 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 Northwest Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northwest Natural Gas has no effect on the direction of CMS Energy i.e., CMS Energy and Northwest Natural go up and down completely randomly.
Pair Corralation between CMS Energy and Northwest Natural
Assuming the 90 days trading horizon CMS Energy is expected to generate 2.99 times less return on investment than Northwest Natural. But when comparing it to its historical volatility, CMS Energy is 1.52 times less risky than Northwest Natural. It trades about 0.07 of its potential returns per unit of risk. Northwest Natural Gas is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 3,913 in Northwest Natural Gas on September 3, 2024 and sell it today you would earn a total of 469.00 from holding Northwest Natural Gas or generate 11.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CMS Energy vs. Northwest Natural Gas
Performance |
| Timeline |
| CMS Energy |
| Northwest Natural Gas |
CMS Energy and Northwest Natural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CMS Energy and Northwest Natural
The main advantage of trading using opposite CMS Energy and Northwest Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMS Energy position performs unexpectedly, Northwest Natural 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 Northwest Natural will offset losses from the drop in Northwest Natural's long position.The idea behind CMS Energy and Northwest Natural Gas 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.| Northwest Natural vs. Chesapeake Utilities | Northwest Natural vs. One Gas | Northwest Natural vs. NiSource | Northwest Natural vs. NewJersey Resources |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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