Correlation Between Hawaiian Electric and CMS Energy

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

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

Diversification Opportunities for Hawaiian Electric and CMS Energy

-0.61

Correlation Coefficient

Hawaiian Electric  CMS Energy

Excellent diversification

The 3 months correlation between Hawaiian and CMS is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Hawaiian Electric and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Hawaiian Electric 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 Hawaiian Electric 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 Hawaiian Electric i.e., Hawaiian Electric and CMS Energy go up and down completely randomly.

Pair Corralation between Hawaiian Electric and CMS Energy

Assuming the 90 days horizon Hawaiian Electric is expected to under-perform the CMS Energy. In addition to that, Hawaiian Electric is 1.26 times more volatile than CMS Energy. It trades about -0.02 of its total potential returns per unit of risk. CMS Energy is currently generating about 0.15 per unit of volatility. If you would invest  6,643  in CMS Energy on December 25, 2024 and sell it today you would earn a total of  671.00  from holding CMS Energy or generate 10.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	93.22%
Values	Daily Returns

Hawaiian Electric  vs.  CMS Energy

Hawaiian Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hawaiian Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Hawaiian Electric is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

CMS Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 11 (%) 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 Hawaiian Electric and CMS Energy

The main advantage of trading using opposite Hawaiian Electric and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hawaiian Electric 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 Hawaiian Electric 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.