Correlation Between Centrais Electricas and CMS Energy

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

Diversification Opportunities for Centrais Electricas and CMS Energy

0.04

Correlation Coefficient

Centrais Electricas  CMS Energy

Significant diversification

The 3 months correlation between Centrais and CMS is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Electricas Brasileira and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Centrais Electricas 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 Electricas 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 Electricas i.e., Centrais Electricas and CMS Energy go up and down completely randomly.

Pair Corralation between Centrais Electricas and CMS Energy

Considering the 90-day investment horizon Centrais Electricas Brasileiras is expected to under-perform the CMS Energy. In addition to that, Centrais Electricas is 1.9 times more volatile than CMS Energy. It trades about -0.18 of its total potential returns per unit of risk. CMS Energy is currently generating about 0.06 per unit of volatility. If you would invest  6,816  in CMS Energy on August 31, 2024 and sell it today you would earn a total of  233.00  from holding CMS Energy or generate 3.42% return on investment over 90 days.

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

Centrais Electricas Brasileira  vs.  CMS Energy

Centrais Electricas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centrais Electricas Brasileiras has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's fundamental drivers remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

CMS Energy

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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 Centrais Electricas and CMS Energy

The main advantage of trading using opposite Centrais Electricas and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Centrais Electricas 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 Electricas 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.