Correlation Between GM and DTE Energy

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

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

Diversification Opportunities for GM and DTE Energy

-0.54

Correlation Coefficient

GM  DTE Energy

Excellent diversification

The 3 months correlation between GM and DTE is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and GM 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 General Motors 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 GM i.e., GM and DTE Energy go up and down completely randomly.

Pair Corralation between GM and DTE Energy

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the DTE Energy. In addition to that, GM is 2.29 times more volatile than DTE Energy. It trades about -0.02 of its total potential returns per unit of risk. DTE Energy is currently generating about 0.2 per unit of volatility. If you would invest  12,011  in DTE Energy on December 25, 2024 and sell it today you would earn a total of  1,604  from holding DTE Energy or generate 13.35% return on investment over 90 days.

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

General Motors  vs.  DTE Energy

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the 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 15 (%) 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 GM and DTE Energy

The main advantage of trading using opposite GM and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.