Correlation Between CMS Energy and Empresa Distribuidora

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

By analyzing existing cross correlation between CMS Energy and Empresa Distribuidora y, you can compare the effects of market volatilities on CMS Energy and Empresa Distribuidora 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 Empresa Distribuidora. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and Empresa Distribuidora.

Diversification Opportunities for CMS Energy and Empresa Distribuidora

0.08

Correlation Coefficient

CMS Energy  Empresa Distribuidora

Significant diversification

The 3 months correlation between CMS and Empresa is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Empresa Distribuidora y in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empresa Distribuidora 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 Empresa Distribuidora. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empresa Distribuidora has no effect on the direction of CMS Energy i.e., CMS Energy and Empresa Distribuidora go up and down completely randomly.

Pair Corralation between CMS Energy and Empresa Distribuidora

Considering the 90-day investment horizon CMS Energy is expected to generate 1.99 times less return on investment than Empresa Distribuidora. But when comparing it to its historical volatility, CMS Energy is 3.61 times less risky than Empresa Distribuidora. It trades about 0.17 of its potential returns per unit of risk. Empresa Distribuidora y is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,683  in Empresa Distribuidora y on February 8, 2024 and sell it today you would earn a total of  337.00  from holding Empresa Distribuidora y or generate 20.02% return on investment over 90 days.

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

CMS Energy  vs.  Empresa Distribuidora y

CMS Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 13 (%) 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.

Empresa Distribuidora

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Empresa Distribuidora y are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Empresa Distribuidora displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CMS Energy and Empresa Distribuidora

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

The idea behind CMS Energy and Empresa Distribuidora y 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.