Correlation Between Nextera Energy and DTE Energy

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

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

Diversification Opportunities for Nextera Energy and DTE Energy

-0.07

Correlation Coefficient

Nextera Energy  DTE Energy

Good diversification

The 3 months correlation between Nextera and DTE is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Nextera 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 Nextera Energy 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 Nextera Energy i.e., Nextera Energy and DTE Energy go up and down completely randomly.

Pair Corralation between Nextera Energy and DTE Energy

Considering the 90-day investment horizon Nextera Energy is expected to under-perform the DTE Energy. In addition to that, Nextera Energy is 1.48 times more volatile than DTE Energy. It trades about -0.1 of its total potential returns per unit of risk. DTE Energy is currently generating about 0.1 per unit of volatility. If you would invest  12,465  in DTE Energy on November 29, 2024 and sell it today you would earn a total of  800.00  from holding DTE Energy or generate 6.42% return on investment over 90 days.

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

Nextera Energy  vs.  DTE Energy

Nextera Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nextera Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

DTE Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DTE Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, DTE Energy may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Nextera Energy and DTE Energy

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

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.