Correlation Between CMS Energy and INNOVATEC SPA

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Can any of the company-specific risk be diversified away by investing in both CMS Energy and INNOVATEC SPA 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 INNOVATEC SPA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CMS Energy and INNOVATEC SPA, you can compare the effects of market volatilities on CMS Energy and INNOVATEC SPA 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 INNOVATEC SPA. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and INNOVATEC SPA.

Diversification Opportunities for CMS Energy and INNOVATEC SPA

-0.27
  Correlation Coefficient

Very good diversification

The 3 months correlation between CMS and INNOVATEC is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and INNOVATEC SPA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INNOVATEC SPA 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 INNOVATEC SPA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INNOVATEC SPA has no effect on the direction of CMS Energy i.e., CMS Energy and INNOVATEC SPA go up and down completely randomly.

Pair Corralation between CMS Energy and INNOVATEC SPA

Assuming the 90 days horizon CMS Energy is expected to generate 3.4 times less return on investment than INNOVATEC SPA. But when comparing it to its historical volatility, CMS Energy is 4.97 times less risky than INNOVATEC SPA. It trades about 0.11 of its potential returns per unit of risk. INNOVATEC SPA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  81.00  in INNOVATEC SPA on September 12, 2024 and sell it today you would earn a total of  5.00  from holding INNOVATEC SPA or generate 6.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

CMS Energy  vs.  INNOVATEC SPA

 Performance 
       Timeline  
CMS Energy 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, CMS Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
INNOVATEC SPA 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in INNOVATEC SPA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, INNOVATEC SPA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CMS Energy and INNOVATEC SPA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CMS Energy and INNOVATEC SPA

The main advantage of trading using opposite CMS Energy and INNOVATEC SPA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMS Energy position performs unexpectedly, INNOVATEC SPA 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 INNOVATEC SPA will offset losses from the drop in INNOVATEC SPA's long position.
The idea behind CMS Energy and INNOVATEC SPA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.

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