Correlation Between CMS Energy and MGE Energy

Can any of the company-specific risk be diversified away by investing in both CMS Energy and MGE 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 MGE 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 MGE Energy, you can compare the effects of market volatilities on CMS Energy and MGE 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 MGE Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and MGE Energy.

Diversification Opportunities for CMS Energy and MGE Energy

-0.07

Correlation Coefficient

CMS Energy  MGE Energy

Good diversification

The 3 months correlation between CMS and MGE is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and MGE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGE 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 MGE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGE Energy has no effect on the direction of CMS Energy i.e., CMS Energy and MGE Energy go up and down completely randomly.

Pair Corralation between CMS Energy and MGE Energy

Considering the 90-day investment horizon CMS Energy is expected to generate 2.14 times less return on investment than MGE Energy. But when comparing it to its historical volatility, CMS Energy is 1.45 times less risky than MGE Energy. It trades about 0.11 of its potential returns per unit of risk. MGE Energy is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  7,872  in MGE Energy on August 30, 2024 and sell it today you would earn a total of  2,604  from holding MGE Energy or generate 33.08% return on investment over 90 days.

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

CMS Energy  vs.  MGE Energy

CMS Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 6 (%) 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

MGE Energy

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MGE Energy are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, MGE Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CMS Energy and MGE Energy

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

The idea behind CMS Energy and MGE 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 CEOs Directory module to screen CEOs from public companies around the world.