Correlation Between Consumers Energy and Hennessy Gas

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

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

Diversification Opportunities for Consumers Energy and Hennessy Gas

-0.33

Correlation Coefficient

Consumers Energy  Hennessy Gas

Very good diversification

The 3 months correlation between Consumers and Hennessy is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Consumers Energy and Hennessy Gas Utility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Gas Utility and Consumers 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 Consumers Energy are associated (or correlated) with Hennessy Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Gas Utility has no effect on the direction of Consumers Energy i.e., Consumers Energy and Hennessy Gas go up and down completely randomly.

Pair Corralation between Consumers Energy and Hennessy Gas

Assuming the 90 days trading horizon Consumers Energy is expected to generate 10.28 times less return on investment than Hennessy Gas. In addition to that, Consumers Energy is 1.5 times more volatile than Hennessy Gas Utility. It trades about 0.0 of its total potential returns per unit of risk. Hennessy Gas Utility is currently generating about 0.08 per unit of volatility. If you would invest  2,282  in Hennessy Gas Utility on September 15, 2024 and sell it today you would earn a total of  423.00  from holding Hennessy Gas Utility or generate 18.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.63%
Values	Daily Returns

Consumers Energy  vs.  Hennessy Gas Utility

Consumers Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hennessy Gas Utility

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Gas Utility are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Hennessy Gas is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Consumers Energy and Hennessy Gas

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

The idea behind Consumers Energy and Hennessy Gas Utility 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.