Correlation Between DTE Energy and Brookfield Renewable

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

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

Diversification Opportunities for DTE Energy and Brookfield Renewable

0.69

Correlation Coefficient

DTE Energy  Brookfield Renewable

Poor diversification

The 3 months correlation between DTE and Brookfield is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding DTE Energy and Brookfield Renewable Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Renewable and DTE 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 DTE Energy are associated (or correlated) with Brookfield Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Renewable has no effect on the direction of DTE Energy i.e., DTE Energy and Brookfield Renewable go up and down completely randomly.

Pair Corralation between DTE Energy and Brookfield Renewable

Considering the 90-day investment horizon DTE Energy is expected to generate 2.25 times more return on investment than Brookfield Renewable. However, DTE Energy is 2.25 times more volatile than Brookfield Renewable Partners. It trades about 0.02 of its potential returns per unit of risk. Brookfield Renewable Partners is currently generating about 0.04 per unit of risk. If you would invest  1,718  in DTE Energy on December 2, 2024 and sell it today you would earn a total of  150.00  from holding DTE Energy or generate 8.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	47.07%
Values	Daily Returns

DTE Energy  vs.  Brookfield Renewable Partners

DTE Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days DTE Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DTE Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Brookfield Renewable

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brookfield Renewable Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Brookfield Renewable is not utilizing all of its potentials. The recent stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with DTE Energy and Brookfield Renewable

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

The idea behind DTE Energy and Brookfield Renewable Partners 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.