Correlation Between Duke Energy and CMS Energy

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

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

Diversification Opportunities for Duke Energy and CMS Energy

0.53

Correlation Coefficient

Duke Energy  CMS Energy

Very weak diversification

The 3 months correlation between Duke and CMS is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy Corp and CMS Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy Corp and Duke 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 Duke Energy Corp are associated (or correlated) with CMS Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMS Energy Corp has no effect on the direction of Duke Energy i.e., Duke Energy and CMS Energy go up and down completely randomly.

Pair Corralation between Duke Energy and CMS Energy

Given the investment horizon of 90 days Duke Energy Corp is expected to under-perform the CMS Energy. But the stock apears to be less risky and, when comparing its historical volatility, Duke Energy Corp is 1.13 times less risky than CMS Energy. The stock trades about -0.12 of its potential returns per unit of risk. The CMS Energy Corp is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,489  in CMS Energy Corp on August 31, 2024 and sell it today you would lose (11.00) from holding CMS Energy Corp or give up 0.44% of portfolio value over 90 days.

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

Duke Energy Corp  vs.  CMS Energy Corp

Duke Energy Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Duke Energy Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward-looking signals, Duke Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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. Despite somewhat strong basic indicators, CMS 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 Duke Energy and CMS Energy

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

The idea behind Duke Energy Corp and CMS Energy Corp 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.