Correlation Between CMS Energy and DTE Energy

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

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

Diversification Opportunities for CMS Energy and DTE Energy

0.88

Correlation Coefficient

CMS Energy  DTE Energy

Very poor diversification

The 3 months correlation between CMS and DTE is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and CMS 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 CMS Energy are associated (or correlated) with DTE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DTE Energy has no effect on the direction of CMS Energy i.e., CMS Energy and DTE Energy go up and down completely randomly.

Pair Corralation between CMS Energy and DTE Energy

Considering the 90-day investment horizon CMS Energy is expected to generate 0.97 times more return on investment than DTE Energy. However, CMS Energy is 1.03 times less risky than DTE Energy. It trades about 0.03 of its potential returns per unit of risk. DTE Energy is currently generating about 0.03 per unit of risk. If you would invest  5,982  in CMS Energy on August 31, 2024 and sell it today you would earn a total of  1,067  from holding CMS Energy or generate 17.84% return on investment over 90 days.

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

CMS Energy  vs.  DTE Energy

CMS Energy

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, CMS Energy is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

DTE Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DTE Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, DTE Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CMS Energy and DTE Energy

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

The idea behind CMS Energy and DTE 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.