Correlation Between CMS Energy and Enel Chile

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

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

Diversification Opportunities for CMS Energy and Enel Chile

-0.52

Correlation Coefficient

CMS Energy  Enel Chile

Excellent diversification

The 3 months correlation between CMS and Enel is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Enel Chile SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enel Chile SA 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 Enel Chile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enel Chile SA has no effect on the direction of CMS Energy i.e., CMS Energy and Enel Chile go up and down completely randomly.

Pair Corralation between CMS Energy and Enel Chile

Assuming the 90 days trading horizon CMS Energy is expected to under-perform the Enel Chile. But the preferred stock apears to be less risky and, when comparing its historical volatility, CMS Energy is 1.8 times less risky than Enel Chile. The preferred stock trades about -0.06 of its potential returns per unit of risk. The Enel Chile SA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  294.00  in Enel Chile SA on December 27, 2024 and sell it today you would earn a total of  42.00  from holding Enel Chile SA or generate 14.29% return on investment over 90 days.

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

CMS Energy  vs.  Enel Chile SA

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Enel Chile SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enel Chile SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Enel Chile exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CMS Energy and Enel Chile

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

The idea behind CMS Energy and Enel Chile SA 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.