Correlation Between CMS Energy and National Rural

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

Diversification Opportunities for CMS Energy and National Rural

0.87

Correlation Coefficient

CMS Energy  National Rural

Very poor diversification

The 3 months correlation between CMS and National is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and National Rural Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Rural Utilities 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 National Rural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Rural Utilities has no effect on the direction of CMS Energy i.e., CMS Energy and National Rural go up and down completely randomly.

Pair Corralation between CMS Energy and National Rural

Given the investment horizon of 90 days CMS Energy Corp is expected to generate 0.86 times more return on investment than National Rural. However, CMS Energy Corp is 1.16 times less risky than National Rural. It trades about -0.05 of its potential returns per unit of risk. National Rural Utilities is currently generating about -0.06 per unit of risk. If you would invest  2,402  in CMS Energy Corp on December 2, 2024 and sell it today you would lose (46.00) from holding CMS Energy Corp or give up 1.92% of portfolio value over 90 days.

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

CMS Energy Corp  vs.  National Rural Utilities

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.

National Rural Utilities

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Rural Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, National Rural 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 National Rural

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

The idea behind CMS Energy Corp and National Rural Utilities 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.