Correlation Between Office Properties and CMS Energy

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

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

Diversification Opportunities for Office Properties and CMS Energy

0.29

Correlation Coefficient

Office Properties  CMS Energy

Modest diversification

The 3 months correlation between Office and CMS is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Office Properties Income 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 Office Properties 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 Office Properties Income 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 Office Properties i.e., Office Properties and CMS Energy go up and down completely randomly.

Pair Corralation between Office Properties and CMS Energy

Assuming the 90 days horizon Office Properties Income is expected to generate 4.79 times more return on investment than CMS Energy. However, Office Properties is 4.79 times more volatile than CMS Energy Corp. It trades about 0.03 of its potential returns per unit of risk. CMS Energy Corp is currently generating about 0.05 per unit of risk. If you would invest  1,097  in Office Properties Income on September 2, 2024 and sell it today you would earn a total of  128.00  from holding Office Properties Income or generate 11.67% return on investment over 90 days.

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

Office Properties Income  vs.  CMS Energy Corp

Office Properties Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Office Properties Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Office Properties is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional 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. 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.

Pair Trading with Office Properties and CMS Energy

The main advantage of trading using opposite Office Properties and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Office Properties 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 Office Properties Income 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.