Correlation Between CMS Energy and SSE PLC

Can any of the company-specific risk be diversified away by investing in both CMS Energy and SSE PLC 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 SSE PLC 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 SSE PLC ADR, you can compare the effects of market volatilities on CMS Energy and SSE PLC 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 SSE PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and SSE PLC.

Diversification Opportunities for CMS Energy and SSE PLC

0.84

Correlation Coefficient

CMS Energy  SSE PLC

Very poor diversification

The 3 months correlation between CMS and SSE is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and SSE PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSE PLC ADR 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 SSE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSE PLC ADR has no effect on the direction of CMS Energy i.e., CMS Energy and SSE PLC go up and down completely randomly.

Pair Corralation between CMS Energy and SSE PLC

Given the investment horizon of 90 days CMS Energy Corp is expected to under-perform the SSE PLC. But the stock apears to be less risky and, when comparing its historical volatility, CMS Energy Corp is 2.04 times less risky than SSE PLC. The stock trades about -0.03 of its potential returns per unit of risk. The SSE PLC ADR is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,915  in SSE PLC ADR on October 22, 2024 and sell it today you would earn a total of  68.00  from holding SSE PLC ADR or generate 3.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.56%
Values	Daily Returns

CMS Energy Corp  vs.  SSE PLC ADR

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 latest unsteady 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.

SSE PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SSE PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with CMS Energy and SSE PLC

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

The idea behind CMS Energy Corp and SSE PLC ADR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.