Correlation Between Prudential Financial and DTE Energy

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

By analyzing existing cross correlation between Prudential Financial 4125 and DTE Energy, you can compare the effects of market volatilities on Prudential Financial 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 Prudential Financial with a short position of DTE Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Financial and DTE Energy.

Diversification Opportunities for Prudential Financial and DTE Energy

0.86

Correlation Coefficient

Prudential Financial  DTE Energy

Very poor diversification

The 3 months correlation between Prudential and DTE is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial 4125 and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Prudential Financial 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 Prudential Financial 4125 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 Prudential Financial i.e., Prudential Financial and DTE Energy go up and down completely randomly.

Pair Corralation between Prudential Financial and DTE Energy

Considering the 90-day investment horizon Prudential Financial 4125 is expected to under-perform the DTE Energy. In addition to that, Prudential Financial is 1.22 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 0.01 per unit of volatility. If you would invest  1,820  in DTE Energy on December 28, 2024 and sell it today you would earn a total of  1.00  from holding DTE Energy or generate 0.05% return on investment over 90 days.

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

Prudential Financial 4125  vs.  DTE Energy

Prudential Financial 4125

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prudential Financial 4125 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Prudential Financial is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

DTE Energy

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Prudential Financial and DTE Energy

The main advantage of trading using opposite Prudential Financial and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Financial 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 Prudential Financial 4125 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.