Correlation Between American Financial and CMS Energy

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

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

Diversification Opportunities for American Financial and CMS Energy

0.36

Correlation Coefficient

American Financial  CMS Energy

Weak diversification

The 3 months correlation between American and CMS is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and CMS Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy Corp and American Financial 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 American Financial Group 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 Corp has no effect on the direction of American Financial i.e., American Financial and CMS Energy go up and down completely randomly.

Pair Corralation between American Financial and CMS Energy

Given the investment horizon of 90 days American Financial Group is expected to under-perform the CMS Energy. In addition to that, American Financial is 1.41 times more volatile than CMS Energy Corp. It trades about -0.08 of its total potential returns per unit of risk. CMS Energy Corp is currently generating about -0.01 per unit of volatility. If you would invest  2,284  in CMS Energy Corp on December 28, 2024 and sell it today you would lose (13.00) from holding CMS Energy Corp or give up 0.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

American Financial Group  vs.  CMS Energy Corp

American Financial

Risk-Adjusted Performance

Very Weak

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

CMS Energy Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CMS Energy Corp 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.

Pair Trading with American Financial and CMS Energy

The main advantage of trading using opposite American Financial and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Financial 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 American Financial Group and CMS Energy Corp 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.