Correlation Between Consumers Energy and Wisconsin Electric

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

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

Diversification Opportunities for Consumers Energy and Wisconsin Electric

0.2

Correlation Coefficient

Consumers Energy  Wisconsin Electric

Modest diversification

The 3 months correlation between Consumers and Wisconsin is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Consumers Energy and Wisconsin Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wisconsin Electric Power 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 Wisconsin Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wisconsin Electric Power has no effect on the direction of Consumers Energy i.e., Consumers Energy and Wisconsin Electric go up and down completely randomly.

Pair Corralation between Consumers Energy and Wisconsin Electric

Assuming the 90 days trading horizon Consumers Energy is expected to generate 4.68 times less return on investment than Wisconsin Electric. In addition to that, Consumers Energy is 1.28 times more volatile than Wisconsin Electric Power. It trades about 0.01 of its total potential returns per unit of risk. Wisconsin Electric Power is currently generating about 0.05 per unit of volatility. If you would invest  6,533  in Wisconsin Electric Power on September 15, 2024 and sell it today you would earn a total of  207.00  from holding Wisconsin Electric Power or generate 3.17% return on investment over 90 days.

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

Consumers Energy  vs.  Wisconsin Electric Power

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.

Wisconsin Electric Power

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wisconsin Electric Power are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Wisconsin Electric is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Consumers Energy and Wisconsin Electric

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

The idea behind Consumers Energy and Wisconsin Electric Power 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 Transaction History module to view history of all your transactions and understand their impact on performance.