Correlation Between CMS Energy and RWE AG

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

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

Diversification Opportunities for CMS Energy and RWE AG

0.67

Correlation Coefficient

CMS Energy  RWE AG

Poor diversification

The 3 months correlation between CMS and RWE is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and RWE AG PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RWE AG PK 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 Corp are associated (or correlated) with RWE AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RWE AG PK has no effect on the direction of CMS Energy i.e., CMS Energy and RWE AG go up and down completely randomly.

Pair Corralation between CMS Energy and RWE AG

Given the investment horizon of 90 days CMS Energy Corp is expected to under-perform the RWE AG. But the stock apears to be less risky and, when comparing its historical volatility, CMS Energy Corp is 3.24 times less risky than RWE AG. The stock trades about -0.03 of its potential returns per unit of risk. The RWE AG PK is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,280  in RWE AG PK on August 31, 2024 and sell it today you would earn a total of  8.00  from holding RWE AG PK or generate 0.24% return on investment over 90 days.

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

CMS Energy Corp  vs.  RWE AG PK

CMS Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMS Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CMS Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

RWE AG PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RWE AG PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with CMS Energy and RWE AG

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

The idea behind CMS Energy Corp and RWE AG PK 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.