Correlation Between Duke Energy and CMS Energy

Can any of the company-specific risk be diversified away by investing in both Duke Energy and CMS Energy 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 Duke Energy and CMS Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Duke Energy and CMS Energy, you can compare the effects of market volatilities on Duke Energy and CMS Energy 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 Duke Energy with a short position of CMS Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Duke Energy and CMS Energy.

Diversification Opportunities for Duke Energy and CMS Energy

0.85

Correlation Coefficient

Duke Energy  CMS Energy

Very poor diversification

The 3 months correlation between Duke and CMS is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Duke 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 Duke Energy are associated (or correlated) with CMS Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMS Energy has no effect on the direction of Duke Energy i.e., Duke Energy and CMS Energy go up and down completely randomly.

Pair Corralation between Duke Energy and CMS Energy

Considering the 90-day investment horizon Duke Energy is expected to under-perform the CMS Energy. In addition to that, Duke Energy is 1.23 times more volatile than CMS Energy. It trades about -0.06 of its total potential returns per unit of risk. CMS Energy is currently generating about -0.07 per unit of volatility. If you would invest  7,010  in CMS Energy on September 30, 2024 and sell it today you would lose (304.00) from holding CMS Energy or give up 4.34% of portfolio value over 90 days.

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

Duke Energy  vs.  CMS Energy

Duke Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Duke Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Duke Energy is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

CMS Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMS Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, CMS Energy is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Duke Energy and CMS Energy

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

The idea behind Duke Energy and CMS Energy 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.