Correlation Between CMS Energy and Northland Power
Can any of the company-specific risk be diversified away by investing in both CMS Energy and Northland Power 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 Northland Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CMS Energy Corp and Northland Power, you can compare the effects of market volatilities on CMS Energy and Northland Power 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 Northland Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and Northland Power.
Diversification Opportunities for CMS Energy and Northland Power
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CMS and Northland is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power 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 Corp are associated (or correlated) with Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of CMS Energy i.e., CMS Energy and Northland Power go up and down completely randomly.
Pair Corralation between CMS Energy and Northland Power
Given the investment horizon of 90 days CMS Energy Corp is expected to generate 0.27 times more return on investment than Northland Power. However, CMS Energy Corp is 3.75 times less risky than Northland Power. It trades about 0.21 of its potential returns per unit of risk. Northland Power is currently generating about -0.09 per unit of risk. If you would invest 2,422 in CMS Energy Corp on September 1, 2024 and sell it today you would earn a total of 66.00 from holding CMS Energy Corp or generate 2.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
CMS Energy Corp vs. Northland Power
Performance |
| Timeline |
| CMS Energy Corp |
| Northland Power |
CMS Energy and Northland Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CMS Energy and Northland Power
The main advantage of trading using opposite CMS Energy and Northland Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMS Energy position performs unexpectedly, Northland Power 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 Northland Power will offset losses from the drop in Northland Power's long position.| CMS Energy vs. CMS Energy Corp | CMS Energy vs. DTE Energy Co | CMS Energy vs. CMS Energy Corp | CMS Energy vs. Southern Co |
| Northland Power vs. Nextera Energy | Northland Power vs. Consumers Energy | Northland Power vs. Duke Energy | Northland Power vs. Centrais Electricas Brasileiras |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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