Correlation Between CMS Energy and Entergy Texas

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

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

Diversification Opportunities for CMS Energy and Entergy Texas

0.76

Correlation Coefficient

CMS Energy  Entergy Texas

Poor diversification

The 3 months correlation between CMS and Entergy is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Entergy Texas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy Texas and CMS Energy 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 CMS Energy are associated (or correlated) with Entergy Texas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy Texas has no effect on the direction of CMS Energy i.e., CMS Energy and Entergy Texas go up and down completely randomly.

Pair Corralation between CMS Energy and Entergy Texas

Assuming the 90 days trading horizon CMS Energy is expected to under-perform the Entergy Texas. In addition to that, CMS Energy is 2.79 times more volatile than Entergy Texas. It trades about -0.15 of its total potential returns per unit of risk. Entergy Texas is currently generating about -0.24 per unit of volatility. If you would invest  2,372  in Entergy Texas on February 29, 2024 and sell it today you would lose (62.00) from holding Entergy Texas or give up 2.61% of portfolio value over 90 days.

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

CMS Energy  vs.  Entergy Texas

CMS Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMS Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, CMS Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Entergy Texas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Entergy Texas has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Entergy Texas is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with CMS Energy and Entergy Texas

The main advantage of trading using opposite CMS Energy and Entergy Texas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMS Energy position performs unexpectedly, Entergy Texas 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 Entergy Texas will offset losses from the drop in Entergy Texas' long position.

The idea behind CMS Energy and Entergy Texas 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.