Correlation Between CMS Energy and Entergy

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

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

Diversification Opportunities for CMS Energy and Entergy

-0.7

Correlation Coefficient

CMS Energy  Entergy

Excellent diversification

The 3 months correlation between CMS and Entergy is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Entergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy 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 Entergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy has no effect on the direction of CMS Energy i.e., CMS Energy and Entergy go up and down completely randomly.

Pair Corralation between CMS Energy and Entergy

Assuming the 90 days trading horizon CMS Energy is expected to under-perform the Entergy. But the preferred stock apears to be less risky and, when comparing its historical volatility, CMS Energy is 1.99 times less risky than Entergy. The preferred stock trades about -0.44 of its potential returns per unit of risk. The Entergy is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  7,625  in Entergy on September 24, 2024 and sell it today you would lose (112.00) from holding Entergy or give up 1.47% of portfolio value over 90 days.

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

CMS Energy  vs.  Entergy

CMS Energy

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Preferred Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Entergy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Entergy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CMS Energy and Entergy

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

The idea behind CMS Energy and Entergy 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.