Correlation Between Dominion Energy and CMS Energy
Can any of the company-specific risk be diversified away by investing in both Dominion Energy and CMS Energy 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 Dominion Energy and CMS Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dominion Energy and CMS Energy Corp, you can compare the effects of market volatilities on Dominion Energy and CMS Energy 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 Dominion Energy with a short position of CMS Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dominion Energy and CMS Energy.
Diversification Opportunities for Dominion Energy and CMS Energy
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dominion and CMS is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Dominion Energy and CMS Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy Corp and Dominion 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 Dominion Energy are associated (or correlated) with CMS Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMS Energy Corp has no effect on the direction of Dominion Energy i.e., Dominion Energy and CMS Energy go up and down completely randomly.
Pair Corralation between Dominion Energy and CMS Energy
Taking into account the 90-day investment horizon Dominion Energy is expected to under-perform the CMS Energy. In addition to that, Dominion Energy is 2.0 times more volatile than CMS Energy Corp. It trades about -0.04 of its total potential returns per unit of risk. CMS Energy Corp is currently generating about -0.07 per unit of volatility. If you would invest 2,439 in CMS Energy Corp on November 2, 2024 and sell it today you would lose (55.00) from holding CMS Energy Corp or give up 2.26% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dominion Energy vs. CMS Energy Corp
Performance |
| Timeline |
| Dominion Energy |
| CMS Energy Corp |
Dominion Energy and CMS Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dominion Energy and CMS Energy
The main advantage of trading using opposite Dominion Energy and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dominion Energy position performs unexpectedly, CMS Energy 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 CMS Energy will offset losses from the drop in CMS Energy's long position.| Dominion Energy vs. Southern Company | Dominion Energy vs. American Electric Power | Dominion Energy vs. Nextera Energy | Dominion Energy vs. Consolidated Edison |
| CMS Energy vs. CMS Energy Corp | CMS Energy vs. CMS Energy Corp | CMS Energy vs. Duke Energy Corp | CMS Energy vs. American Financial Group |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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