Correlation Between Sparta Capital and CMS Energy

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

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

Diversification Opportunities for Sparta Capital and CMS Energy

0.48

Correlation Coefficient

Sparta Capital  CMS Energy

Very weak diversification

The 3 months correlation between Sparta and CMS is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Sparta Capital and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Sparta Capital 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 Sparta Capital 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 Sparta Capital i.e., Sparta Capital and CMS Energy go up and down completely randomly.

Pair Corralation between Sparta Capital and CMS Energy

Assuming the 90 days horizon Sparta Capital is expected to under-perform the CMS Energy. In addition to that, Sparta Capital is 5.25 times more volatile than CMS Energy. It trades about -0.21 of its total potential returns per unit of risk. CMS Energy is currently generating about -0.09 per unit of volatility. If you would invest  1,990  in CMS Energy on August 31, 2024 and sell it today you would lose (41.00) from holding CMS Energy or give up 2.06% of portfolio value over 90 days.

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

Sparta Capital  vs.  CMS Energy

Sparta Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sparta Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

CMS Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, CMS Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Sparta Capital and CMS Energy

The main advantage of trading using opposite Sparta Capital and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sparta Capital 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 Sparta Capital 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.