Correlation Between SPACE and CMS Energy
Can any of the company-specific risk be diversified away by investing in both SPACE 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 SPACE and CMS Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPACE and CMS Energy, you can compare the effects of market volatilities on SPACE 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 SPACE with a short position of CMS Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPACE and CMS Energy.
Diversification Opportunities for SPACE and CMS Energy
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between SPACE and CMS is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding SPACE and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and SPACE 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 SPACE 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 SPACE i.e., SPACE and CMS Energy go up and down completely randomly.
Pair Corralation between SPACE and CMS Energy
Assuming the 90 days horizon SPACE is expected to under-perform the CMS Energy. In addition to that, SPACE is 6.92 times more volatile than CMS Energy. It trades about 0.0 of its total potential returns per unit of risk. CMS Energy is currently generating about 0.04 per unit of volatility. If you would invest 1,883 in CMS Energy on September 3, 2024 and sell it today you would earn a total of 76.00 from holding CMS Energy or generate 4.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 96.9% |
| Values | Daily Returns |
SPACE vs. CMS Energy
Performance |
| Timeline |
| SPACE |
| CMS Energy |
SPACE and CMS Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPACE and CMS Energy
The main advantage of trading using opposite SPACE and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPACE 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.The idea behind SPACE and CMS Energy 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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