Correlation Between FirstEnergy and CMS Energy

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

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

Diversification Opportunities for FirstEnergy and CMS Energy

0.11

Correlation Coefficient

FirstEnergy  CMS Energy

Average diversification

The 3 months correlation between FirstEnergy and CMS is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and FirstEnergy 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 FirstEnergy 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 FirstEnergy i.e., FirstEnergy and CMS Energy go up and down completely randomly.

Pair Corralation between FirstEnergy and CMS Energy

Allowing for the 90-day total investment horizon FirstEnergy is expected to generate 2.35 times more return on investment than CMS Energy. However, FirstEnergy is 2.35 times more volatile than CMS Energy. It trades about 0.01 of its potential returns per unit of risk. CMS Energy is currently generating about -0.12 per unit of risk. If you would invest  3,922  in FirstEnergy on December 29, 2024 and sell it today you would earn a total of  23.00  from holding FirstEnergy or generate 0.59% return on investment over 90 days.

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

FirstEnergy  vs.  CMS Energy

FirstEnergy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FirstEnergy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, FirstEnergy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 FirstEnergy and CMS Energy

The main advantage of trading using opposite FirstEnergy and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FirstEnergy 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 FirstEnergy 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..