Correlation Between CMS Energy and Entergy Arkansas

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

Diversification Opportunities for CMS Energy and Entergy Arkansas

0.68

Correlation Coefficient

CMS Energy  Entergy Arkansas

Poor diversification

The 3 months correlation between CMS and Entergy is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and Entergy Arkansas LLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy Arkansas LLC 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 Entergy Arkansas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy Arkansas LLC has no effect on the direction of CMS Energy i.e., CMS Energy and Entergy Arkansas go up and down completely randomly.

Pair Corralation between CMS Energy and Entergy Arkansas

Given the investment horizon of 90 days CMS Energy Corp is expected to under-perform the Entergy Arkansas. But the stock apears to be less risky and, when comparing its historical volatility, CMS Energy Corp is 1.36 times less risky than Entergy Arkansas. The stock trades about -0.05 of its potential returns per unit of risk. The Entergy Arkansas LLC is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,182  in Entergy Arkansas LLC on November 29, 2024 and sell it today you would lose (6.00) from holding Entergy Arkansas LLC or give up 0.27% of portfolio value over 90 days.

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

CMS Energy Corp  vs.  Entergy Arkansas LLC

CMS Energy Corp

Risk-Adjusted Performance

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.

Entergy Arkansas LLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Entergy Arkansas LLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Entergy Arkansas is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with CMS Energy and Entergy Arkansas

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

The idea behind CMS Energy Corp and Entergy Arkansas LLC 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.