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 Industries 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

-0.4

Correlation Coefficient

Hawaiian Electric  CMS Energy

Very good diversification

The 3 months correlation between Hawaiian and CMS is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Hawaiian Electric Industries 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 Industries 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

Allowing for the 90-day total investment horizon Hawaiian Electric Industries is expected to generate 3.6 times more return on investment than CMS Energy. However, Hawaiian Electric is 3.6 times more volatile than CMS Energy. It trades about 0.09 of its potential returns per unit of risk. CMS Energy is currently generating about -0.11 per unit of risk. If you would invest  974.00  in Hawaiian Electric Industries on December 28, 2024 and sell it today you would earn a total of  143.00  from holding Hawaiian Electric Industries or generate 14.68% return on investment over 90 days.

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

Hawaiian Electric Industries  vs.  CMS Energy

Hawaiian Electric

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hawaiian Electric Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Hawaiian Electric 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 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 Industries 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.

Check out your portfolio center.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.