Correlation Between CMS Energy and WEC Energy

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

Diversification Opportunities for CMS Energy and WEC Energy

0.39

Correlation Coefficient

CMS Energy  WEC Energy

Weak diversification

The 3 months correlation between CMS and WEC is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and WEC Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEC Energy Group 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 WEC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEC Energy Group has no effect on the direction of CMS Energy i.e., CMS Energy and WEC Energy go up and down completely randomly.

Pair Corralation between CMS Energy and WEC Energy

Considering the 90-day investment horizon CMS Energy is expected to generate 3.47 times less return on investment than WEC Energy. In addition to that, CMS Energy is 1.05 times more volatile than WEC Energy Group. It trades about 0.04 of its total potential returns per unit of risk. WEC Energy Group is currently generating about 0.15 per unit of volatility. If you would invest  9,283  in WEC Energy Group on September 3, 2024 and sell it today you would earn a total of  822.00  from holding WEC Energy Group or generate 8.85% 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.  WEC Energy Group

CMS Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 3 (%) 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.

WEC Energy Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WEC Energy Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, WEC Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CMS Energy and WEC Energy

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

The idea behind CMS Energy and WEC Energy Group 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.