Correlation Between CMS Energy and Nextera Energy

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

Diversification Opportunities for CMS Energy and Nextera Energy

0.81

Correlation Coefficient

CMS Energy  Nextera Energy

Very poor diversification

The 3 months correlation between CMS and Nextera is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera 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 Nextera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextera Energy has no effect on the direction of CMS Energy i.e., CMS Energy and Nextera Energy go up and down completely randomly.

Pair Corralation between CMS Energy and Nextera Energy

Considering the 90-day investment horizon CMS Energy is expected to generate 0.83 times more return on investment than Nextera Energy. However, CMS Energy is 1.21 times less risky than Nextera Energy. It trades about -0.11 of its potential returns per unit of risk. Nextera Energy is currently generating about -0.16 per unit of risk. If you would invest  6,850  in CMS Energy on September 17, 2024 and sell it today you would lose (118.00) from holding CMS Energy or give up 1.72% of portfolio value over 90 days.

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

CMS Energy  vs.  Nextera Energy

CMS Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMS Energy has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Nextera Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextera Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with CMS Energy and Nextera Energy

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

The idea behind CMS Energy and Nextera 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.