Correlation Between Consumers Energy and Maxim Power

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

By analyzing existing cross correlation between Consumers Energy and Maxim Power Corp, you can compare the effects of market volatilities on Consumers Energy and Maxim Power 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 Maxim Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumers Energy and Maxim Power.

Diversification Opportunities for Consumers Energy and Maxim Power

-0.5

Correlation Coefficient

Consumers Energy  Maxim Power

Very good diversification

The 3 months correlation between Consumers and Maxim is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Consumers Energy and Maxim Power Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maxim Power Corp 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 Maxim Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maxim Power Corp has no effect on the direction of Consumers Energy i.e., Consumers Energy and Maxim Power go up and down completely randomly.

Pair Corralation between Consumers Energy and Maxim Power

Assuming the 90 days trading horizon Consumers Energy is expected to under-perform the Maxim Power. But the preferred stock apears to be less risky and, when comparing its historical volatility, Consumers Energy is 2.5 times less risky than Maxim Power. The preferred stock trades about -0.01 of its potential returns per unit of risk. The Maxim Power Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  350.00  in Maxim Power Corp on November 29, 2024 and sell it today you would earn a total of  11.00  from holding Maxim Power Corp or generate 3.14% return on investment over 90 days.

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

Consumers Energy  vs.  Maxim Power Corp

Consumers Energy

Risk-Adjusted Performance

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 current stock price disturbance, may contribute to short-term losses for the investors.

Maxim Power Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Maxim Power Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Maxim Power may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Consumers Energy and Maxim Power

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

The idea behind Consumers Energy and Maxim Power 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.