Correlation Between CMS Energy and Western Asset

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

Diversification Opportunities for CMS Energy and Western Asset

0.67

Correlation Coefficient

CMS Energy  Western Asset

Poor diversification

The 3 months correlation between CMS and Western is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding CMS Energy Corp and Western Asset Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Investment 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Investment has no effect on the direction of CMS Energy i.e., CMS Energy and Western Asset go up and down completely randomly.

Pair Corralation between CMS Energy and Western Asset

Given the investment horizon of 90 days CMS Energy is expected to generate 142.0 times less return on investment than Western Asset. In addition to that, CMS Energy is 1.42 times more volatile than Western Asset Investment. It trades about 0.0 of its total potential returns per unit of risk. Western Asset Investment is currently generating about 0.16 per unit of volatility. If you would invest  1,688  in Western Asset Investment on March 22, 2024 and sell it today you would earn a total of  30.00  from holding Western Asset Investment or generate 1.78% return on investment over 90 days.

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

CMS Energy Corp  vs.  Western Asset Investment

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Western Asset Investment

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Western Asset is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with CMS Energy and Western Asset

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

The idea behind CMS Energy Corp and Western Asset Investment 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.