Correlation Between CMS Energy and Consolidated Edison

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

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

Diversification Opportunities for CMS Energy and Consolidated Edison

-0.61

Correlation Coefficient

CMS Energy  Consolidated Edison

Excellent diversification

The 3 months correlation between CMS and Consolidated is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Consolidated Edison in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consolidated Edison and CMS 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 CMS Energy are associated (or correlated) with Consolidated Edison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consolidated Edison has no effect on the direction of CMS Energy i.e., CMS Energy and Consolidated Edison go up and down completely randomly.

Pair Corralation between CMS Energy and Consolidated Edison

Assuming the 90 days trading horizon CMS Energy is expected to under-perform the Consolidated Edison. But the preferred stock apears to be less risky and, when comparing its historical volatility, CMS Energy is 1.72 times less risky than Consolidated Edison. The preferred stock trades about -0.12 of its potential returns per unit of risk. The Consolidated Edison is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  8,837  in Consolidated Edison on December 29, 2024 and sell it today you would earn a total of  2,040  from holding Consolidated Edison or generate 23.08% return on investment over 90 days.

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

CMS Energy  vs.  Consolidated Edison

CMS Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days CMS Energy 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Consolidated Edison

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Consolidated Edison are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Consolidated Edison exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CMS Energy and Consolidated Edison

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

The idea behind CMS Energy and Consolidated Edison 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.