Correlation Between CMS Energy and Argo Group

Can any of the company-specific risk be diversified away by investing in both CMS Energy and Argo Group 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 Argo Group 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 Argo Group 65, you can compare the effects of market volatilities on CMS Energy and Argo Group 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 Argo Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and Argo Group.

Diversification Opportunities for CMS Energy and Argo Group

0.32

Correlation Coefficient

CMS Energy  Argo Group

Weak diversification

The 3 months correlation between CMS and Argo is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and Argo Group 65 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Argo Group 65 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 Argo Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Argo Group 65 has no effect on the direction of CMS Energy i.e., CMS Energy and Argo Group go up and down completely randomly.

Pair Corralation between CMS Energy and Argo Group

Given the investment horizon of 90 days CMS Energy Corp is expected to under-perform the Argo Group. But the stock apears to be less risky and, when comparing its historical volatility, CMS Energy Corp is 1.86 times less risky than Argo Group. The stock trades about -0.03 of its potential returns per unit of risk. The Argo Group 65 is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,220  in Argo Group 65 on August 31, 2024 and sell it today you would earn a total of  5.00  from holding Argo Group 65 or generate 0.23% return on investment over 90 days.

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

CMS Energy Corp  vs.  Argo Group 65

CMS Energy Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, CMS Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Argo Group 65

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Argo Group 65 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Argo Group is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CMS Energy and Argo Group

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

The idea behind CMS Energy Corp and Argo Group 65 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.