Correlation Between CMS Energy and PPL

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

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

Diversification Opportunities for CMS Energy and PPL

0.26

Correlation Coefficient

CMS Energy  PPL

Modest diversification

The 3 months correlation between CMS and PPL is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and PPL Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPL Corporation 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 PPL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPL Corporation has no effect on the direction of CMS Energy i.e., CMS Energy and PPL go up and down completely randomly.

Pair Corralation between CMS Energy and PPL

Considering the 90-day investment horizon CMS Energy is expected to generate 12.61 times less return on investment than PPL. But when comparing it to its historical volatility, CMS Energy is 1.11 times less risky than PPL. It trades about 0.01 of its potential returns per unit of risk. PPL Corporation is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,186  in PPL Corporation on September 3, 2024 and sell it today you would earn a total of  258.00  from holding PPL Corporation or generate 8.1% return on investment over 90 days.

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

CMS Energy  vs.  PPL Corp.

CMS Energy

Risk-Adjusted Performance

0 of 100

Insignificant

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.

PPL Corporation

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PPL Corporation are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, PPL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CMS Energy and PPL

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

The idea behind CMS Energy and PPL Corporation 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 Transaction History module to view history of all your transactions and understand their impact on performance.