Correlation Between CMS Energy and Southern Company
Can any of the company-specific risk be diversified away by investing in both CMS Energy and Southern Company 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 Southern Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CMS Energy and Southern Company Series, you can compare the effects of market volatilities on CMS Energy and Southern Company 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 Southern Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and Southern Company.
Diversification Opportunities for CMS Energy and Southern Company
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CMS and Southern is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Southern Company Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Company 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 Southern Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Company has no effect on the direction of CMS Energy i.e., CMS Energy and Southern Company go up and down completely randomly.
Pair Corralation between CMS Energy and Southern Company
Assuming the 90 days trading horizon CMS Energy is expected to under-perform the Southern Company. But the preferred stock apears to be less risky and, when comparing its historical volatility, CMS Energy is 1.01 times less risky than Southern Company. The preferred stock trades about -0.31 of its potential returns per unit of risk. The Southern Company Series is currently generating about -0.3 of returns per unit of risk over similar time horizon. If you would invest 2,100 in Southern Company Series on August 24, 2024 and sell it today you would lose (119.00) from holding Southern Company Series or give up 5.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CMS Energy vs. Southern Company Series
Performance |
| Timeline |
| CMS Energy |
| Southern Company |
CMS Energy and Southern Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CMS Energy and Southern Company
The main advantage of trading using opposite CMS Energy and Southern Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMS Energy position performs unexpectedly, Southern Company 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 Southern Company will offset losses from the drop in Southern Company's long position.| CMS Energy vs. Entergy Texas | CMS Energy vs. Duke Energy | CMS Energy vs. Spire Inc | CMS Energy vs. Consumers Energy |
| Southern Company vs. Southern Co | Southern Company vs. DTE Energy | Southern Company vs. Southern Co | Southern Company vs. Prudential Financial 4125 |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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