Correlation Between IDACORP and CMS Energy

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

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

Diversification Opportunities for IDACORP and CMS Energy

0.94

Correlation Coefficient

IDACORP  CMS Energy

Almost no diversification

The 3 months correlation between IDACORP and CMS is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding IDACORP and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and IDACORP 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 IDACORP 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 IDACORP i.e., IDACORP and CMS Energy go up and down completely randomly.

Pair Corralation between IDACORP and CMS Energy

Considering the 90-day investment horizon IDACORP is expected to generate 1.79 times less return on investment than CMS Energy. In addition to that, IDACORP is 1.09 times more volatile than CMS Energy. It trades about 0.07 of its total potential returns per unit of risk. CMS Energy is currently generating about 0.14 per unit of volatility. If you would invest  6,654  in CMS Energy on December 27, 2024 and sell it today you would earn a total of  661.00  from holding CMS Energy or generate 9.93% return on investment over 90 days.

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

IDACORP  vs.  CMS Energy

IDACORP

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IDACORP are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, IDACORP is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the 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 IDACORP and CMS Energy

The main advantage of trading using opposite IDACORP and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IDACORP 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 IDACORP 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.