Correlation Between CMS Energy and National Grid
Can any of the company-specific risk be diversified away by investing in both CMS Energy and National Grid 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 National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CMS Energy and National Grid PLC, you can compare the effects of market volatilities on CMS Energy and National Grid 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 National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and National Grid.
Diversification Opportunities for CMS Energy and National Grid
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between CMS and National is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and National Grid PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid PLC 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid PLC has no effect on the direction of CMS Energy i.e., CMS Energy and National Grid go up and down completely randomly.
Pair Corralation between CMS Energy and National Grid
Considering the 90-day investment horizon CMS Energy is expected to generate 1.05 times more return on investment than National Grid. However, CMS Energy is 1.05 times more volatile than National Grid PLC. It trades about 0.14 of its potential returns per unit of risk. National Grid PLC is currently generating about 0.04 per unit of risk. If you would invest 6,778 in CMS Energy on September 2, 2024 and sell it today you would earn a total of 193.00 from holding CMS Energy or generate 2.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CMS Energy vs. National Grid PLC
Performance |
| Timeline |
| CMS Energy |
| National Grid PLC |
CMS Energy and National Grid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CMS Energy and National Grid
The main advantage of trading using opposite CMS Energy and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMS Energy position performs unexpectedly, National Grid 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 National Grid will offset losses from the drop in National Grid's long position.| CMS Energy vs. Entergy | CMS Energy vs. Ameren Corp | CMS Energy vs. CenterPoint Energy | CMS Energy vs. Alliant Energy Corp |
| National Grid vs. Southern Company | National Grid vs. Edison International | National Grid vs. American Electric Power | National Grid vs. Duke 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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