Correlation Between Centrais Elétricas and CMS Energy

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

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

Diversification Opportunities for Centrais Elétricas and CMS Energy

0.86

Correlation Coefficient

Centrais Elétricas  CMS Energy

Very poor diversification

The 3 months correlation between Centrais and CMS is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Centrais Elétricas 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 Centrais Eltricas Brasileiras 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 Centrais Elétricas i.e., Centrais Elétricas and CMS Energy go up and down completely randomly.

Pair Corralation between Centrais Elétricas and CMS Energy

Assuming the 90 days horizon Centrais Eltricas Brasileiras is expected to generate 1.6 times more return on investment than CMS Energy. However, Centrais Elétricas is 1.6 times more volatile than CMS Energy. It trades about 0.24 of its potential returns per unit of risk. CMS Energy is currently generating about 0.17 per unit of risk. If you would invest  609.00  in Centrais Eltricas Brasileiras on December 28, 2024 and sell it today you would earn a total of  174.00  from holding Centrais Eltricas Brasileiras or generate 28.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Centrais Eltricas Brasileiras  vs.  CMS Energy

Centrais Elétricas

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Centrais Eltricas Brasileiras are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Centrais Elétricas sustained solid returns over the last few months and may actually be approaching a breakup point.

CMS Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, CMS Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Centrais Elétricas and CMS Energy

The main advantage of trading using opposite Centrais Elétricas and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Centrais Elétricas 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 Centrais Eltricas Brasileiras 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.