Correlation Between CMS Energy and Georgia Power

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

Diversification Opportunities for CMS Energy and Georgia Power

0.7

Correlation Coefficient

CMS Energy  Georgia Power

Poor diversification

The 3 months correlation between CMS and Georgia is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and Georgia Power Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Georgia Power 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 Georgia Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Georgia Power has no effect on the direction of CMS Energy i.e., CMS Energy and Georgia Power go up and down completely randomly.

Pair Corralation between CMS Energy and Georgia Power

Given the investment horizon of 90 days CMS Energy Corp is expected to generate 0.66 times more return on investment than Georgia Power. However, CMS Energy Corp is 1.51 times less risky than Georgia Power. It trades about 0.05 of its potential returns per unit of risk. Georgia Power Co is currently generating about -0.1 per unit of risk. If you would invest  2,372  in CMS Energy Corp on September 19, 2024 and sell it today you would earn a total of  60.00  from holding CMS Energy Corp or generate 2.53% 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.  Georgia Power Co

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. 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.

Georgia Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Georgia Power Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's forward-looking 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 Georgia Power

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

The idea behind CMS Energy Corp and Georgia Power Co 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.