Correlation Between Clearway Energy and Consumers Energy

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

By analyzing existing cross correlation between Clearway Energy and Consumers Energy, you can compare the effects of market volatilities on Clearway Energy and Consumers 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 Clearway Energy with a short position of Consumers Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clearway Energy and Consumers Energy.

Diversification Opportunities for Clearway Energy and Consumers Energy

-0.27

Correlation Coefficient

Clearway Energy  Consumers Energy

Very good diversification

The 3 months correlation between Clearway and Consumers is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Clearway Energy and Consumers Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumers Energy and Clearway 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 Clearway Energy are associated (or correlated) with Consumers Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumers Energy has no effect on the direction of Clearway Energy i.e., Clearway Energy and Consumers Energy go up and down completely randomly.

Pair Corralation between Clearway Energy and Consumers Energy

Assuming the 90 days trading horizon Clearway Energy is expected to under-perform the Consumers Energy. In addition to that, Clearway Energy is 1.5 times more volatile than Consumers Energy. It trades about -0.02 of its total potential returns per unit of risk. Consumers Energy is currently generating about 0.01 per unit of volatility. If you would invest  7,959  in Consumers Energy on September 16, 2024 and sell it today you would earn a total of  10.00  from holding Consumers Energy or generate 0.13% return on investment over 90 days.

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

Clearway Energy  vs.  Consumers Energy

Clearway Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clearway Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Clearway Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Consumers Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumers Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Consumers Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Clearway Energy and Consumers Energy

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

The idea behind Clearway Energy and Consumers 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.