Correlation Between CMS Energy and Red Electrica
Can any of the company-specific risk be diversified away by investing in both CMS Energy and Red Electrica 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 Red Electrica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CMS Energy and Red Electrica Corporacion, you can compare the effects of market volatilities on CMS Energy and Red Electrica 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 Red Electrica. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and Red Electrica.
Diversification Opportunities for CMS Energy and Red Electrica
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CMS and Red is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Red Electrica Corporacion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Electrica Corporacion 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 Red Electrica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Electrica Corporacion has no effect on the direction of CMS Energy i.e., CMS Energy and Red Electrica go up and down completely randomly.
Pair Corralation between CMS Energy and Red Electrica
Considering the 90-day investment horizon CMS Energy is expected to generate 1.04 times less return on investment than Red Electrica. In addition to that, CMS Energy is 1.14 times more volatile than Red Electrica Corporacion. It trades about 0.04 of its total potential returns per unit of risk. Red Electrica Corporacion is currently generating about 0.05 per unit of volatility. If you would invest 830.00 in Red Electrica Corporacion on November 5, 2024 and sell it today you would earn a total of 8.00 from holding Red Electrica Corporacion or generate 0.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CMS Energy vs. Red Electrica Corporacion
Performance |
| Timeline |
| CMS Energy |
| Red Electrica Corporacion |
CMS Energy and Red Electrica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CMS Energy and Red Electrica
The main advantage of trading using opposite CMS Energy and Red Electrica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMS Energy position performs unexpectedly, Red Electrica 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 Red Electrica will offset losses from the drop in Red Electrica's long position.| CMS Energy vs. Entergy | CMS Energy vs. Ameren Corp | CMS Energy vs. CenterPoint Energy | CMS Energy vs. Alliant Energy Corp |
| Red Electrica vs. Engie Brasil Energia | Red Electrica vs. Centrais Eltricas Brasileiras | Red Electrica vs. Centrais Electricas Brasileiras | Red Electrica vs. Ameren Corp |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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