Correlation Between Consumers Energy and Clearway Energy

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

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

Diversification Opportunities for Consumers Energy and Clearway Energy

-0.27

Correlation Coefficient

Consumers Energy  Clearway Energy

Very good diversification

The 3 months correlation between Consumers and Clearway is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Consumers Energy and Clearway Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clearway Energy and Consumers 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 Consumers Energy are associated (or correlated) with Clearway Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clearway Energy has no effect on the direction of Consumers Energy i.e., Consumers Energy and Clearway Energy go up and down completely randomly.

Pair Corralation between Consumers Energy and Clearway Energy

Assuming the 90 days trading horizon Consumers Energy is expected to generate 0.67 times more return on investment than Clearway Energy. However, Consumers Energy is 1.5 times less risky than Clearway Energy. It trades about 0.01 of its potential returns per unit of risk. Clearway Energy is currently generating about -0.02 per unit of risk. If you would invest  7,959  in Consumers Energy on September 16, 2024 and sell it today you would earn a total of  10.00  from holding Consumers Energy or generate 0.13% return on investment over 90 days.

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

Consumers Energy  vs.  Clearway Energy

Consumers Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumers Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Consumers Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Clearway Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clearway Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Clearway Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Consumers Energy and Clearway Energy

The main advantage of trading using opposite Consumers Energy and Clearway Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumers Energy position performs unexpectedly, Clearway 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 Clearway Energy will offset losses from the drop in Clearway Energy's long position.

The idea behind Consumers Energy and Clearway 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.