Correlation Between Entergy and CMS Energy

Can any of the company-specific risk be diversified away by investing in both Entergy 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 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 and CMS Energy, you can compare the effects of market volatilities on Entergy 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 with a short position of CMS Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Entergy and CMS Energy.

Diversification Opportunities for Entergy and CMS Energy

0.89

Correlation Coefficient

Entergy  CMS Energy

Very poor diversification

The 3 months correlation between Entergy and CMS is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Entergy and CMS Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMS Energy and Entergy 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 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 i.e., Entergy and CMS Energy go up and down completely randomly.

Pair Corralation between Entergy and CMS Energy

Considering the 90-day investment horizon Entergy is expected to generate 1.13 times more return on investment than CMS Energy. However, Entergy is 1.13 times more volatile than CMS Energy. It trades about 0.18 of its potential returns per unit of risk. CMS Energy is currently generating about 0.17 per unit of risk. If you would invest  10,321  in Entergy on February 4, 2024 and sell it today you would earn a total of  487.00  from holding Entergy or generate 4.72% return on investment over 90 days.

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

Entergy  vs.  CMS Energy

Entergy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Entergy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

CMS Energy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMS Energy are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, CMS Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Entergy and CMS Energy

The main advantage of trading using opposite Entergy and CMS Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy 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 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.

Check out your portfolio center.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.