Correlation Between Algonquin Power and DTE Energy

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

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

Diversification Opportunities for Algonquin Power and DTE Energy

-0.6

Correlation Coefficient

Algonquin Power  DTE Energy

Excellent diversification

The 3 months correlation between Algonquin and DTE is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and DTE Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Algonquin Power 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 Algonquin Power Utilities are associated (or correlated) with DTE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DTE Energy has no effect on the direction of Algonquin Power i.e., Algonquin Power and DTE Energy go up and down completely randomly.

Pair Corralation between Algonquin Power and DTE Energy

Given the investment horizon of 90 days Algonquin Power is expected to generate 10.57 times less return on investment than DTE Energy. But when comparing it to its historical volatility, Algonquin Power Utilities is 4.45 times less risky than DTE Energy. It trades about 0.08 of its potential returns per unit of risk. DTE Energy Co is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,182  in DTE Energy Co on October 27, 2024 and sell it today you would earn a total of  110.00  from holding DTE Energy Co or generate 5.04% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  DTE Energy Co

Algonquin Power Utilities

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Algonquin Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

DTE Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DTE Energy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, DTE Energy is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Algonquin Power and DTE Energy

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

The idea behind Algonquin Power Utilities and DTE Energy Co 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.