Correlation Between CMS Energy and Ford

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

Diversification Opportunities for CMS Energy and Ford

0.84

Correlation Coefficient

CMS Energy  Ford

Very poor diversification

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

Pair Corralation between CMS Energy and Ford

Given the investment horizon of 90 days CMS Energy Corp is expected to under-perform the Ford. But the stock apears to be less risky and, when comparing its historical volatility, CMS Energy Corp is 1.15 times less risky than Ford. The stock trades about -0.53 of its potential returns per unit of risk. The Ford Motor is currently generating about -0.4 of returns per unit of risk over similar time horizon. If you would invest  2,381  in Ford Motor on September 27, 2024 and sell it today you would lose (76.00) from holding Ford Motor or give up 3.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

CMS Energy Corp  vs.  Ford Motor

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.

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Ford is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CMS Energy and Ford

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

The idea behind CMS Energy Corp and Ford Motor 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.