Correlation Between Edison International and DTE Energy

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

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

Diversification Opportunities for Edison International and DTE Energy

-0.45

Correlation Coefficient

Edison International  DTE Energy

Very good diversification

The 3 months correlation between Edison and DTE is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Edison International 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 Edison International 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 Edison International i.e., Edison International and DTE Energy go up and down completely randomly.

Pair Corralation between Edison International and DTE Energy

Considering the 90-day investment horizon Edison International is expected to under-perform the DTE Energy. In addition to that, Edison International is 2.69 times more volatile than DTE Energy. It trades about -0.16 of its total potential returns per unit of risk. DTE Energy is currently generating about 0.19 per unit of volatility. If you would invest  12,037  in DTE Energy on December 27, 2024 and sell it today you would earn a total of  1,535  from holding DTE Energy or generate 12.75% return on investment over 90 days.

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

Edison International  vs.  DTE Energy

Edison International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Edison International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

DTE Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DTE Energy are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, DTE Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Edison International and DTE Energy

The main advantage of trading using opposite Edison International and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edison International 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 Edison International and DTE Energy 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.