Correlation Between CMS Energy and Hercules Capital

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

Diversification Opportunities for CMS Energy and Hercules Capital

-0.08

Correlation Coefficient

CMS Energy  Hercules Capital

Good diversification

The 3 months correlation between CMS and Hercules is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and Hercules Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Capital 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 Hercules Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hercules Capital has no effect on the direction of CMS Energy i.e., CMS Energy and Hercules Capital go up and down completely randomly.

Pair Corralation between CMS Energy and Hercules Capital

Given the investment horizon of 90 days CMS Energy Corp is expected to generate 1.1 times more return on investment than Hercules Capital. However, CMS Energy is 1.1 times more volatile than Hercules Capital. It trades about -0.21 of its potential returns per unit of risk. Hercules Capital is currently generating about -0.28 per unit of risk. If you would invest  2,462  in CMS Energy Corp on September 19, 2024 and sell it today you would lose (30.00) from holding CMS Energy Corp or give up 1.22% of portfolio value over 90 days.

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

CMS Energy Corp  vs.  Hercules Capital

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.

Hercules Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hercules Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Hercules Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CMS Energy and Hercules Capital

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

The idea behind CMS Energy Corp and Hercules Capital 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.