Correlation Between CMS Energy and Prudential Financial

Can any of the company-specific risk be diversified away by investing in both CMS Energy and Prudential Financial 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 Prudential Financial 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 Prudential Financial 5950, you can compare the effects of market volatilities on CMS Energy and Prudential Financial 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 Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and Prudential Financial.

Diversification Opportunities for CMS Energy and Prudential Financial

0.66

Correlation Coefficient

CMS Energy  Prudential Financial

Poor diversification

The 3 months correlation between CMS and Prudential is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and Prudential Financial 5950 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 5950 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 Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial 5950 has no effect on the direction of CMS Energy i.e., CMS Energy and Prudential Financial go up and down completely randomly.

Pair Corralation between CMS Energy and Prudential Financial

Given the investment horizon of 90 days CMS Energy is expected to generate 1.45 times less return on investment than Prudential Financial. But when comparing it to its historical volatility, CMS Energy Corp is 1.06 times less risky than Prudential Financial. It trades about 0.03 of its potential returns per unit of risk. Prudential Financial 5950 is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,392  in Prudential Financial 5950 on September 28, 2024 and sell it today you would earn a total of  119.00  from holding Prudential Financial 5950 or generate 4.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.63%
Values	Daily Returns

CMS Energy Corp  vs.  Prudential Financial 5950

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Prudential Financial 5950

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Financial 5950 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Prudential Financial is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with CMS Energy and Prudential Financial

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

The idea behind CMS Energy Corp and Prudential Financial 5950 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.