Correlation Between Entergy Texas and CMS Energy

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

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

Diversification Opportunities for Entergy Texas and CMS Energy

-0.16

Correlation Coefficient

Entergy Texas  CMS Energy

Good diversification

The 3 months correlation between Entergy and CMS is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Entergy Texas and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Entergy Texas 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 Entergy Texas 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 Entergy Texas i.e., Entergy Texas and CMS Energy go up and down completely randomly.

Pair Corralation between Entergy Texas and CMS Energy

Assuming the 90 days horizon Entergy Texas is expected to generate 1.4 times more return on investment than CMS Energy. However, Entergy Texas is 1.4 times more volatile than CMS Energy. It trades about 0.04 of its potential returns per unit of risk. CMS Energy is currently generating about -0.07 per unit of risk. If you would invest  2,294  in Entergy Texas on January 9, 2025 and sell it today you would earn a total of  44.00  from holding Entergy Texas or generate 1.92% return on investment over 90 days.

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

Entergy Texas  vs.  CMS Energy

Entergy Texas

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy Texas are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Entergy Texas is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

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 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 Entergy Texas and CMS Energy

The main advantage of trading using opposite Entergy Texas and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy Texas 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 Entergy Texas 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.