Correlation Between FirstEnergy and CMS Energy
Can any of the company-specific risk be diversified away by investing in both FirstEnergy 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 FirstEnergy and CMS Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FirstEnergy and CMS Energy, you can compare the effects of market volatilities on FirstEnergy 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 FirstEnergy with a short position of CMS Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of FirstEnergy and CMS Energy.
Diversification Opportunities for FirstEnergy and CMS Energy
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between FirstEnergy and CMS is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and FirstEnergy 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 FirstEnergy 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 FirstEnergy i.e., FirstEnergy and CMS Energy go up and down completely randomly.
Pair Corralation between FirstEnergy and CMS Energy
Allowing for the 90-day total investment horizon FirstEnergy is expected to under-perform the CMS Energy. But the stock apears to be less risky and, when comparing its historical volatility, FirstEnergy is 1.33 times less risky than CMS Energy. The stock trades about -0.18 of its potential returns per unit of risk. The CMS Energy is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest 7,155 in CMS Energy on August 24, 2024 and sell it today you would lose (234.00) from holding CMS Energy or give up 3.27% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
FirstEnergy vs. CMS Energy
Performance |
| Timeline |
| FirstEnergy |
| CMS Energy |
FirstEnergy and CMS Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FirstEnergy and CMS Energy
The main advantage of trading using opposite FirstEnergy and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FirstEnergy 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.| FirstEnergy vs. CenterPoint Energy | FirstEnergy vs. Pinnacle West Capital | FirstEnergy vs. Edison International | FirstEnergy vs. Public Service Enterprise |
| 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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