Correlation Between MGE Energy and CMS Energy

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

Diversification Opportunities for MGE Energy and CMS Energy

-0.07

Correlation Coefficient

MGE Energy  CMS Energy

Good diversification

The 3 months correlation between MGE and CMS is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding MGE Energy and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and MGE 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 MGE Energy 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 has no effect on the direction of MGE Energy i.e., MGE Energy and CMS Energy go up and down completely randomly.

Pair Corralation between MGE Energy and CMS Energy

Given the investment horizon of 90 days MGE Energy is expected to generate 1.71 times more return on investment than CMS Energy. However, MGE Energy is 1.71 times more volatile than CMS Energy. It trades about 0.19 of its potential returns per unit of risk. CMS Energy is currently generating about 0.08 per unit of risk. If you would invest  8,671  in MGE Energy on August 30, 2024 and sell it today you would earn a total of  1,805  from holding MGE Energy or generate 20.82% return on investment over 90 days.

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

MGE Energy  vs.  CMS Energy

MGE Energy

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MGE Energy are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, MGE Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

CMS Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 6 (%) 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with MGE Energy and CMS Energy

The main advantage of trading using opposite MGE Energy and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MGE 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 MGE Energy and CMS 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.

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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.