Correlation Between Portland General and CMS Energy

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

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

Diversification Opportunities for Portland General and CMS Energy

0.76

Correlation Coefficient

Portland General  CMS Energy

Poor diversification

The 3 months correlation between Portland and CMS is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Portland General Electric and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Portland General 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 Portland General 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 Portland General i.e., Portland General and CMS Energy go up and down completely randomly.

Pair Corralation between Portland General and CMS Energy

Considering the 90-day investment horizon Portland General is expected to generate 4.87 times less return on investment than CMS Energy. In addition to that, Portland General is 1.19 times more volatile than CMS Energy. It trades about 0.03 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  6,611  in CMS Energy on December 28, 2024 and sell it today you would earn a total of  704.00  from holding CMS Energy or generate 10.65% return on investment over 90 days.

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

Portland General Electric  vs.  CMS Energy

Portland General Electric

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Portland General Electric are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Portland General is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail 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 12 (%) 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 Portland General and CMS Energy

The main advantage of trading using opposite Portland General and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Portland General 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 Portland General 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.