Correlation Between Southern and CMS Energy
Can any of the company-specific risk be diversified away by investing in both Southern 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 Southern and CMS Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Company and CMS Energy, you can compare the effects of market volatilities on Southern 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 Southern with a short position of CMS Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and CMS Energy.
Diversification Opportunities for Southern and CMS Energy
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southern and CMS is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Southern 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 Southern Company 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 Southern i.e., Southern and CMS Energy go up and down completely randomly.
Pair Corralation between Southern and CMS Energy
Allowing for the 90-day total investment horizon Southern Company is expected to generate 0.89 times more return on investment than CMS Energy. However, Southern Company is 1.13 times less risky than CMS Energy. It trades about 0.06 of its potential returns per unit of risk. CMS Energy is currently generating about 0.02 per unit of risk. If you would invest 6,137 in Southern Company on November 9, 2024 and sell it today you would earn a total of 2,242 from holding Southern Company or generate 36.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Company vs. CMS Energy
Performance |
| Timeline |
| Southern |
| CMS Energy |
Southern and CMS Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern and CMS Energy
The main advantage of trading using opposite Southern and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern 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.| Southern vs. Dominion Energy | Southern vs. American Electric Power | Southern vs. Nextera Energy | Southern vs. Consolidated Edison |
| 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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