Correlation Between Engie Brasil and CMS Energy

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

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

Diversification Opportunities for Engie Brasil and CMS Energy

0.3

Correlation Coefficient

Engie Brasil  CMS Energy

Weak diversification

The 3 months correlation between Engie and CMS is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Engie Brasil Energia and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Engie Brasil 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 Engie Brasil Energia 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 Engie Brasil i.e., Engie Brasil and CMS Energy go up and down completely randomly.

Pair Corralation between Engie Brasil and CMS Energy

Assuming the 90 days horizon Engie Brasil Energia is expected to under-perform the CMS Energy. In addition to that, Engie Brasil is 2.35 times more volatile than CMS Energy. It trades about -0.1 of its total potential returns per unit of risk. CMS Energy is currently generating about -0.1 per unit of volatility. If you would invest  7,062  in CMS Energy on October 26, 2024 and sell it today you would lose (476.00) from holding CMS Energy or give up 6.74% of portfolio value over 90 days.

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

Engie Brasil Energia  vs.  CMS Energy

Engie Brasil Energia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Engie Brasil Energia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company 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 latest weak performance, the Stock's primary indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Engie Brasil and CMS Energy

The main advantage of trading using opposite Engie Brasil and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Engie Brasil 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 Engie Brasil Energia 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 Commodity Directory module to find actively traded commodities issued by global exchanges.