Correlation Between Public Service and DTE Energy

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

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

Diversification Opportunities for Public Service and DTE Energy

-0.48

Correlation Coefficient

Public Service  DTE Energy

Very good diversification

The 3 months correlation between Public and DTE is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Public Service Enterprise and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Public Service 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 Public Service Enterprise 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 Public Service i.e., Public Service and DTE Energy go up and down completely randomly.

Pair Corralation between Public Service and DTE Energy

Considering the 90-day investment horizon Public Service Enterprise is expected to under-perform the DTE Energy. In addition to that, Public Service is 1.36 times more volatile than DTE Energy. It trades about -0.03 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  12,011  in DTE Energy on December 26, 2024 and sell it today you would earn a total of  1,561  from holding DTE Energy or generate 13.0% return on investment over 90 days.

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

Public Service Enterprise  vs.  DTE Energy

Public Service Enterprise

Risk-Adjusted Performance

Very Weak

Over the last 90 days Public Service Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Public Service is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Public Service and DTE Energy

The main advantage of trading using opposite Public Service and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Public Service 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 Public Service Enterprise 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.