Correlation Between ReNew Energy and CMS Energy

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

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

Diversification Opportunities for ReNew Energy and CMS Energy

0.54

Correlation Coefficient

ReNew Energy  CMS Energy

Very weak diversification

The 3 months correlation between ReNew and CMS is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding ReNew Energy Global and CMS Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy Corp and ReNew Energy 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 ReNew Energy Global 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 Corp has no effect on the direction of ReNew Energy i.e., ReNew Energy and CMS Energy go up and down completely randomly.

Pair Corralation between ReNew Energy and CMS Energy

Assuming the 90 days horizon ReNew Energy Global is expected to generate 16.41 times more return on investment than CMS Energy. However, ReNew Energy is 16.41 times more volatile than CMS Energy Corp. It trades about 0.0 of its potential returns per unit of risk. CMS Energy Corp is currently generating about -0.13 per unit of risk. If you would invest  21.00  in ReNew Energy Global on November 29, 2024 and sell it today you would lose (8.00) from holding ReNew Energy Global or give up 38.1% of portfolio value over 90 days.

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

ReNew Energy Global  vs.  CMS Energy Corp

ReNew Energy Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days ReNew Energy Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ReNew Energy is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

CMS Energy Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CMS Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with ReNew Energy and CMS Energy

The main advantage of trading using opposite ReNew Energy and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ReNew Energy 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 ReNew Energy Global and CMS Energy Corp 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.