Correlation Between CMS Energy and STRATS SM

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

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

Diversification Opportunities for CMS Energy and STRATS SM

0.25

Correlation Coefficient

CMS Energy  STRATS SM

Modest diversification

The 3 months correlation between CMS and STRATS is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and STRATS SM Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STRATS SM Trust 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 Corp are associated (or correlated) with STRATS SM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STRATS SM Trust has no effect on the direction of CMS Energy i.e., CMS Energy and STRATS SM go up and down completely randomly.

Pair Corralation between CMS Energy and STRATS SM

Given the investment horizon of 90 days CMS Energy is expected to generate 35.2 times less return on investment than STRATS SM. But when comparing it to its historical volatility, CMS Energy Corp is 1.82 times less risky than STRATS SM. It trades about 0.0 of its potential returns per unit of risk. STRATS SM Trust is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,237  in STRATS SM Trust on September 2, 2024 and sell it today you would earn a total of  44.00  from holding STRATS SM Trust or generate 1.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.31%
Values	Daily Returns

CMS Energy Corp  vs.  STRATS SM Trust

CMS Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMS Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, CMS Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

STRATS SM Trust

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in STRATS SM Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking indicators, STRATS SM is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CMS Energy and STRATS SM

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

The idea behind CMS Energy Corp and STRATS SM Trust 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.