Correlation Between Sonic Automotive and DTE Energy

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

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

Diversification Opportunities for Sonic Automotive and DTE Energy

-0.75

Correlation Coefficient

Sonic Automotive  DTE Energy

Pay attention - limited upside

The 3 months correlation between Sonic and DTE is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Sonic Automotive and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Sonic Automotive 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 Sonic Automotive 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 Sonic Automotive i.e., Sonic Automotive and DTE Energy go up and down completely randomly.

Pair Corralation between Sonic Automotive and DTE Energy

Considering the 90-day investment horizon Sonic Automotive is expected to generate 3.06 times more return on investment than DTE Energy. However, Sonic Automotive is 3.06 times more volatile than DTE Energy. It trades about 0.1 of its potential returns per unit of risk. DTE Energy is currently generating about -0.05 per unit of risk. If you would invest  5,995  in Sonic Automotive on September 2, 2024 and sell it today you would earn a total of  919.00  from holding Sonic Automotive or generate 15.33% return on investment over 90 days.

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

Sonic Automotive  vs.  DTE Energy

Sonic Automotive

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sonic Automotive are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Sonic Automotive demonstrated solid returns over the last few months and may actually be approaching a breakup point.

DTE Energy

Risk-Adjusted Performance

0 of 100

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 Sonic Automotive and DTE Energy

The main advantage of trading using opposite Sonic Automotive and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sonic Automotive 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 Sonic Automotive 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.