Correlation Between Consumers Energy and Otter Tail

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

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

Diversification Opportunities for Consumers Energy and Otter Tail

0.71

Correlation Coefficient

Consumers Energy  Otter Tail

Poor diversification

The 3 months correlation between Consumers and Otter is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Consumers Energy and Otter Tail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otter Tail 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 Otter Tail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otter Tail has no effect on the direction of Consumers Energy i.e., Consumers Energy and Otter Tail go up and down completely randomly.

Pair Corralation between Consumers Energy and Otter Tail

Assuming the 90 days trading horizon Consumers Energy is expected to generate 1.8 times less return on investment than Otter Tail. But when comparing it to its historical volatility, Consumers Energy is 1.17 times less risky than Otter Tail. It trades about 0.06 of its potential returns per unit of risk. Otter Tail is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,410  in Otter Tail on December 30, 2024 and sell it today you would earn a total of  663.00  from holding Otter Tail or generate 8.95% return on investment over 90 days.

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

Consumers Energy  vs.  Otter Tail

Consumers Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Consumers Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Otter Tail

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Otter Tail are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Otter Tail may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Consumers Energy and Otter Tail

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

The idea behind Consumers Energy and Otter Tail 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.