Correlation Between CMS Energy and Aris Water

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

By analyzing existing cross correlation between CMS Energy and Aris Water Solutions, you can compare the effects of market volatilities on CMS Energy and Aris Water 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 Aris Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMS Energy and Aris Water.

Diversification Opportunities for CMS Energy and Aris Water

-0.5

Correlation Coefficient

CMS Energy  Aris Water

Very good diversification

The 3 months correlation between CMS and Aris is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy and Aris Water Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aris Water Solutions 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 are associated (or correlated) with Aris Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aris Water Solutions has no effect on the direction of CMS Energy i.e., CMS Energy and Aris Water go up and down completely randomly.

Pair Corralation between CMS Energy and Aris Water

Assuming the 90 days trading horizon CMS Energy is expected to generate 7.93 times less return on investment than Aris Water. But when comparing it to its historical volatility, CMS Energy is 1.89 times less risky than Aris Water. It trades about 0.07 of its potential returns per unit of risk. Aris Water Solutions is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,395  in Aris Water Solutions on February 16, 2024 and sell it today you would earn a total of  272.50  from holding Aris Water Solutions or generate 19.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

CMS Energy  vs.  Aris Water Solutions

CMS Energy

Risk-Adjusted Performance

0 of 100

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.

Aris Water Solutions

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aris Water Solutions are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Aris Water unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CMS Energy and Aris Water

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

The idea behind CMS Energy and Aris Water Solutions 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.