Correlation Between Enel Chile and CMS Energy

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

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

Diversification Opportunities for Enel Chile and CMS Energy

-0.52

Correlation Coefficient

Enel Chile  CMS Energy

Excellent diversification

The 3 months correlation between Enel and CMS is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Enel Chile SA and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Enel Chile 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 Enel Chile SA 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 Enel Chile i.e., Enel Chile and CMS Energy go up and down completely randomly.

Pair Corralation between Enel Chile and CMS Energy

Given the investment horizon of 90 days Enel Chile SA is expected to generate 1.8 times more return on investment than CMS Energy. However, Enel Chile is 1.8 times more volatile than CMS Energy. It trades about 0.15 of its potential returns per unit of risk. CMS Energy is currently generating about -0.06 per unit of risk. If you would invest  294.00  in Enel Chile SA on December 27, 2024 and sell it today you would earn a total of  42.00  from holding Enel Chile SA or generate 14.29% return on investment over 90 days.

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

Enel Chile SA  vs.  CMS Energy

Enel Chile SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enel Chile SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Enel Chile exhibited solid returns over the last few months and may actually be approaching a breakup point.

CMS Energy

Risk-Adjusted Performance

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 rather sound basic indicators, CMS Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Enel Chile and CMS Energy

The main advantage of trading using opposite Enel Chile and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enel Chile 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 Enel Chile SA 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.