Correlation Between PNM Resources and CMS Energy

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

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

Diversification Opportunities for PNM Resources and CMS Energy

0.17

Correlation Coefficient

PNM Resources  CMS Energy

Average diversification

The 3 months correlation between PNM and CMS is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding PNM Resources and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and PNM Resources 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 PNM Resources 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 PNM Resources i.e., PNM Resources and CMS Energy go up and down completely randomly.

Pair Corralation between PNM Resources and CMS Energy

Considering the 90-day investment horizon PNM Resources is expected to generate 0.87 times more return on investment than CMS Energy. However, PNM Resources is 1.16 times less risky than CMS Energy. It trades about 0.22 of its potential returns per unit of risk. CMS Energy is currently generating about 0.06 per unit of risk. If you would invest  4,138  in PNM Resources on August 31, 2024 and sell it today you would earn a total of  187.00  from holding PNM Resources or generate 4.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	39.68%
Values	Daily Returns

PNM Resources  vs.  CMS Energy

PNM Resources

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days PNM Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, PNM Resources may actually be approaching a critical reversion point that can send shares even higher in December 2024.

CMS Energy

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 4 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PNM Resources and CMS Energy

The main advantage of trading using opposite PNM Resources and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PNM Resources 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 PNM Resources 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.