Correlation Between National Grid and CMS Energy
Can any of the company-specific risk be diversified away by investing in both National Grid 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 National Grid and CMS Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Grid PLC and CMS Energy, you can compare the effects of market volatilities on National Grid 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 National Grid with a short position of CMS Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Grid and CMS Energy.
Diversification Opportunities for National Grid and CMS Energy
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between National and CMS is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding National Grid PLC and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and National Grid 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 National Grid PLC 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 National Grid i.e., National Grid and CMS Energy go up and down completely randomly.
Pair Corralation between National Grid and CMS Energy
Considering the 90-day investment horizon National Grid PLC is expected to generate 1.54 times more return on investment than CMS Energy. However, National Grid is 1.54 times more volatile than CMS Energy. It trades about 0.19 of its potential returns per unit of risk. CMS Energy is currently generating about 0.03 per unit of risk. If you would invest 5,798 in National Grid PLC on November 9, 2024 and sell it today you would earn a total of 369.00 from holding National Grid PLC or generate 6.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Grid PLC vs. CMS Energy
Performance |
| Timeline |
| National Grid PLC |
| CMS Energy |
National Grid and CMS Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Grid and CMS Energy
The main advantage of trading using opposite National Grid and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Grid 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.| National Grid vs. Southern Company | National Grid vs. Edison International | National Grid vs. American Electric Power | National Grid vs. Duke Energy |
| CMS Energy vs. Entergy Texas | CMS Energy vs. Duke Energy | CMS Energy vs. Spire Inc | CMS Energy vs. Consumers Energy |
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 CEOs Directory module to screen CEOs from public companies around the world.
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