Correlation Between Consolidated Edison and CMS Energy
Can any of the company-specific risk be diversified away by investing in both Consolidated Edison 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 Consolidated Edison and CMS Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consolidated Edison and CMS Energy, you can compare the effects of market volatilities on Consolidated Edison 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 Consolidated Edison with a short position of CMS Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consolidated Edison and CMS Energy.
Diversification Opportunities for Consolidated Edison and CMS Energy
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Consolidated and CMS is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Consolidated Edison 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 Consolidated Edison 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 has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and CMS Energy go up and down completely randomly.
Pair Corralation between Consolidated Edison and CMS Energy
Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 1.94 times less return on investment than CMS Energy. But when comparing it to its historical volatility, Consolidated Edison is 1.06 times less risky than CMS Energy. It trades about 0.01 of its potential returns per unit of risk. CMS Energy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 5,875 in CMS Energy on October 25, 2024 and sell it today you would earn a total of 711.00 from holding CMS Energy or generate 12.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consolidated Edison vs. CMS Energy
Performance |
| Timeline |
| Consolidated Edison |
| CMS Energy |
Consolidated Edison and CMS Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consolidated Edison and CMS Energy
The main advantage of trading using opposite Consolidated Edison and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consolidated Edison 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.| Consolidated Edison vs. Duke Energy | Consolidated Edison vs. Dominion Energy | Consolidated Edison vs. American Electric Power | Consolidated Edison vs. Nextera Energy |
| CMS Energy vs. Entergy | CMS Energy vs. Ameren Corp | CMS Energy vs. CenterPoint Energy | CMS Energy vs. Alliant Energy 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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