Correlation Between Xtrackers ShortDAX and CMS Energy

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

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

Diversification Opportunities for Xtrackers ShortDAX and CMS Energy

-0.64

Correlation Coefficient

Xtrackers ShortDAX  CMS Energy

Excellent diversification

The 3 months correlation between Xtrackers and CMS is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers ShortDAX and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Xtrackers ShortDAX 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 Xtrackers ShortDAX 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 Xtrackers ShortDAX i.e., Xtrackers ShortDAX and CMS Energy go up and down completely randomly.

Pair Corralation between Xtrackers ShortDAX and CMS Energy

Assuming the 90 days trading horizon Xtrackers ShortDAX is expected to generate 2.75 times more return on investment than CMS Energy. However, Xtrackers ShortDAX is 2.75 times more volatile than CMS Energy. It trades about 0.0 of its potential returns per unit of risk. CMS Energy is currently generating about -0.03 per unit of risk. If you would invest  73.00  in Xtrackers ShortDAX on January 17, 2025 and sell it today you would lose (4.00) from holding Xtrackers ShortDAX or give up 5.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Xtrackers ShortDAX  vs.  CMS Energy

Xtrackers ShortDAX

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xtrackers ShortDAX has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers ShortDAX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

CMS Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days CMS Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental 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 Xtrackers ShortDAX and CMS Energy

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