Correlation Between Ameren Corp and CMS Energy

Can any of the company-specific risk be diversified away by investing in both Ameren Corp 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 Ameren Corp and CMS Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ameren Corp and CMS Energy, you can compare the effects of market volatilities on Ameren Corp 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 Ameren Corp with a short position of CMS Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ameren Corp and CMS Energy.

Diversification Opportunities for Ameren Corp and CMS Energy

0.89

Correlation Coefficient

Ameren Corp  CMS Energy

Very poor diversification

The 3 months correlation between Ameren and CMS is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Ameren Corp and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Ameren Corp 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 Ameren Corp 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 Ameren Corp i.e., Ameren Corp and CMS Energy go up and down completely randomly.

Pair Corralation between Ameren Corp and CMS Energy

Considering the 90-day investment horizon Ameren Corp is expected to generate 1.21 times less return on investment than CMS Energy. In addition to that, Ameren Corp is 1.0 times more volatile than CMS Energy. It trades about 0.13 of its total potential returns per unit of risk. CMS Energy is currently generating about 0.16 per unit of volatility. If you would invest  5,695  in CMS Energy on February 11, 2024 and sell it today you would earn a total of  598.00  from holding CMS Energy or generate 10.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Ameren Corp  vs.  CMS Energy

Ameren Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ameren Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Ameren Corp may actually be approaching a critical reversion point that can send shares even higher in June 2024.

CMS Energy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, CMS Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Ameren Corp and CMS Energy

The main advantage of trading using opposite Ameren Corp and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ameren Corp 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 Ameren Corp 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.