Correlation Between Public Service and CMS Energy
Can any of the company-specific risk be diversified away by investing in both Public Service 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 Public Service and CMS Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Public Service Enterprise and CMS Energy, you can compare the effects of market volatilities on Public Service 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 Public Service with a short position of CMS Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Public Service and CMS Energy.
Diversification Opportunities for Public Service and CMS Energy
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Public and CMS is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Public Service Enterprise and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Public Service 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 Public Service Enterprise 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 Public Service i.e., Public Service and CMS Energy go up and down completely randomly.
Pair Corralation between Public Service and CMS Energy
Considering the 90-day investment horizon Public Service Enterprise is expected to generate 1.04 times more return on investment than CMS Energy. However, Public Service is 1.04 times more volatile than CMS Energy. It trades about 0.09 of its potential returns per unit of risk. CMS Energy is currently generating about 0.04 per unit of risk. If you would invest 5,611 in Public Service Enterprise on August 24, 2024 and sell it today you would earn a total of 3,624 from holding Public Service Enterprise or generate 64.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Public Service Enterprise vs. CMS Energy
Performance |
| Timeline |
| Public Service Enterprise |
| CMS Energy |
Public Service and CMS Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Public Service and CMS Energy
The main advantage of trading using opposite Public Service and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Public Service 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.| Public Service vs. Korea Electric Power | Public Service vs. Centrais Electricas Brasileiras | Public Service vs. MGE Energy | Public Service vs. IDACORP |
| 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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