Correlation Between CMS Energy and FirstEnergy
Can any of the company-specific risk be diversified away by investing in both CMS Energy and FirstEnergy 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 FirstEnergy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CMS Energy and FirstEnergy, you can compare the effects of market volatilities on CMS Energy and FirstEnergy 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 FirstEnergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and FirstEnergy.
Diversification Opportunities for CMS Energy and FirstEnergy
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between CMS and FirstEnergy is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy 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 FirstEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstEnergy has no effect on the direction of CMS Energy i.e., CMS Energy and FirstEnergy go up and down completely randomly.
Pair Corralation between CMS Energy and FirstEnergy
Considering the 90-day investment horizon CMS Energy is expected to generate 1.19 times more return on investment than FirstEnergy. However, CMS Energy is 1.19 times more volatile than FirstEnergy. It trades about 0.13 of its potential returns per unit of risk. FirstEnergy is currently generating about 0.11 per unit of risk. If you would invest 5,954 in CMS Energy on August 27, 2024 and sell it today you would earn a total of 1,013 from holding CMS Energy or generate 17.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CMS Energy vs. FirstEnergy
Performance |
| Timeline |
| CMS Energy |
| FirstEnergy |
CMS Energy and FirstEnergy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CMS Energy and FirstEnergy
The main advantage of trading using opposite CMS Energy and FirstEnergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMS Energy position performs unexpectedly, FirstEnergy 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 FirstEnergy will offset losses from the drop in FirstEnergy's long position.| CMS Energy vs. Entergy | CMS Energy vs. Ameren Corp | CMS Energy vs. CenterPoint Energy | CMS Energy vs. Alliant Energy Corp |
| FirstEnergy vs. CenterPoint Energy | FirstEnergy vs. Pinnacle West Capital | FirstEnergy vs. Edison International | FirstEnergy vs. Public Service Enterprise |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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