Correlation Between CMS Energy and Centrais Elétricas

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

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

Diversification Opportunities for CMS Energy and Centrais Elétricas

0.86

Correlation Coefficient

CMS Energy  Centrais Elétricas

Very poor diversification

The 3 months correlation between CMS and Centrais is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Elétricas 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 Centrais Elétricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Elétricas has no effect on the direction of CMS Energy i.e., CMS Energy and Centrais Elétricas go up and down completely randomly.

Pair Corralation between CMS Energy and Centrais Elétricas

Considering the 90-day investment horizon CMS Energy is expected to generate 2.23 times less return on investment than Centrais Elétricas. But when comparing it to its historical volatility, CMS Energy is 1.6 times less risky than Centrais Elétricas. It trades about 0.17 of its potential returns per unit of risk. Centrais Eltricas Brasileiras is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  609.00  in Centrais Eltricas Brasileiras on December 28, 2024 and sell it today you would earn a total of  174.00  from holding Centrais Eltricas Brasileiras or generate 28.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

CMS Energy  vs.  Centrais Eltricas Brasileiras

CMS Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, CMS Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Centrais Elétricas

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Centrais Eltricas Brasileiras are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Centrais Elétricas sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CMS Energy and Centrais Elétricas

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

The idea behind CMS Energy and Centrais Eltricas Brasileiras 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.