Correlation Between CMS Energy and Duke Energy

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

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

Diversification Opportunities for CMS Energy and Duke Energy

0.79

Correlation Coefficient

CMS Energy  Duke Energy

Poor diversification

The 3 months correlation between CMS and Duke is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and Duke Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Duke Energy Corp and CMS 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 CMS Energy Corp are associated (or correlated) with Duke Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Duke Energy Corp has no effect on the direction of CMS Energy i.e., CMS Energy and Duke Energy go up and down completely randomly.

Pair Corralation between CMS Energy and Duke Energy

Given the investment horizon of 90 days CMS Energy Corp is expected to under-perform the Duke Energy. But the stock apears to be less risky and, when comparing its historical volatility, CMS Energy Corp is 1.08 times less risky than Duke Energy. The stock trades about -0.21 of its potential returns per unit of risk. The Duke Energy Corp is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  2,467  in Duke Energy Corp on October 1, 2024 and sell it today you would lose (65.00) from holding Duke Energy Corp or give up 2.63% of portfolio value over 90 days.

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

CMS Energy Corp  vs.  Duke Energy Corp

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.

Duke Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Duke Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with CMS Energy and Duke Energy

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

The idea behind CMS Energy Corp and Duke 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.