Correlation Between Portland General and DTE Energy

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

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

Diversification Opportunities for Portland General and DTE Energy

0.74

Correlation Coefficient

Portland General  DTE Energy

Poor diversification

The 3 months correlation between Portland and DTE is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Portland General Electric and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Portland General 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 Portland General Electric 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 Portland General i.e., Portland General and DTE Energy go up and down completely randomly.

Pair Corralation between Portland General and DTE Energy

Considering the 90-day investment horizon Portland General is expected to generate 5.86 times less return on investment than DTE Energy. In addition to that, Portland General is 1.22 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  11,958  in DTE Energy on December 28, 2024 and sell it today you would earn a total of  1,562  from holding DTE Energy or generate 13.06% return on investment over 90 days.

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

Portland General Electric  vs.  DTE Energy

Portland General Electric

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Portland General Electric are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Portland General is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail 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 Portland General and DTE Energy

The main advantage of trading using opposite Portland General and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Portland General 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 Portland General Electric 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.