Correlation Between DTE Energy and Merrill Lynch

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

By analyzing existing cross correlation between DTE Energy Co and Merrill Lynch Depositor, you can compare the effects of market volatilities on DTE Energy and Merrill Lynch 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 Merrill Lynch. Check out your portfolio center. Please also check ongoing floating volatility patterns of DTE Energy and Merrill Lynch.

Diversification Opportunities for DTE Energy and Merrill Lynch

0.63

Correlation Coefficient

DTE Energy  Merrill Lynch

Poor diversification

The 3 months correlation between DTE and Merrill is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding DTE Energy Co and Merrill Lynch Depositor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merrill Lynch Depositor 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 Co are associated (or correlated) with Merrill Lynch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merrill Lynch Depositor has no effect on the direction of DTE Energy i.e., DTE Energy and Merrill Lynch go up and down completely randomly.

Pair Corralation between DTE Energy and Merrill Lynch

Considering the 90-day investment horizon DTE Energy Co is expected to under-perform the Merrill Lynch. But the stock apears to be less risky and, when comparing its historical volatility, DTE Energy Co is 1.46 times less risky than Merrill Lynch. The stock trades about -0.18 of its potential returns per unit of risk. The Merrill Lynch Depositor is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,642  in Merrill Lynch Depositor on September 20, 2024 and sell it today you would lose (122.00) from holding Merrill Lynch Depositor or give up 4.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

DTE Energy Co  vs.  Merrill Lynch Depositor

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 latest unsteady performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Merrill Lynch Depositor

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with DTE Energy and Merrill Lynch

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

The idea behind DTE Energy Co and Merrill Lynch Depositor 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.