Correlation Between Atmos Energy and CMS Energy

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

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

Diversification Opportunities for Atmos Energy and CMS Energy

-0.37

Correlation Coefficient

Atmos Energy  CMS Energy

Very good diversification

The 3 months correlation between Atmos and CMS is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Atmos Energy 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 Atmos 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 Atmos Energy 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 Atmos Energy i.e., Atmos Energy and CMS Energy go up and down completely randomly.

Pair Corralation between Atmos Energy and CMS Energy

Considering the 90-day investment horizon Atmos Energy is expected to generate 1.6 times more return on investment than CMS Energy. However, Atmos Energy is 1.6 times more volatile than CMS Energy Corp. It trades about 0.27 of its potential returns per unit of risk. CMS Energy Corp is currently generating about -0.01 per unit of risk. If you would invest  13,109  in Atmos Energy on August 31, 2024 and sell it today you would earn a total of  2,034  from holding Atmos Energy or generate 15.52% return on investment over 90 days.

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

Atmos Energy  vs.  CMS Energy Corp

Atmos Energy

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Atmos Energy are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Atmos Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

CMS Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMS Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CMS Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Atmos Energy and CMS Energy

The main advantage of trading using opposite Atmos Energy and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Atmos Energy 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 Atmos Energy 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.