Correlation Between CMS Energy and IDACORP

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

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

Diversification Opportunities for CMS Energy and IDACORP

0.94

Correlation Coefficient

CMS Energy  IDACORP

Almost no diversification

The 3 months correlation between CMS and IDACORP is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and IDACORP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDACORP 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 IDACORP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDACORP has no effect on the direction of CMS Energy i.e., CMS Energy and IDACORP go up and down completely randomly.

Pair Corralation between CMS Energy and IDACORP

Considering the 90-day investment horizon CMS Energy is expected to generate 0.91 times more return on investment than IDACORP. However, CMS Energy is 1.1 times less risky than IDACORP. It trades about 0.14 of its potential returns per unit of risk. IDACORP is currently generating about 0.06 per unit of risk. If you would invest  6,654  in CMS Energy on December 27, 2024 and sell it today you would earn a total of  661.00  from holding CMS Energy or generate 9.93% return on investment over 90 days.

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

CMS Energy  vs.  IDACORP

CMS Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 11 (%) 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.

IDACORP

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IDACORP are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, IDACORP is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CMS Energy and IDACORP

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

The idea behind CMS Energy and IDACORP 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.