Correlation Between DTE Energy and Avangrid

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

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

Diversification Opportunities for DTE Energy and Avangrid

0.5

Correlation Coefficient

DTE Energy  Avangrid

Very weak diversification

The 3 months correlation between DTE and Avangrid is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding DTE Energy and Avangrid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avangrid and DTE 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 DTE Energy are associated (or correlated) with Avangrid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avangrid has no effect on the direction of DTE Energy i.e., DTE Energy and Avangrid go up and down completely randomly.

Pair Corralation between DTE Energy and Avangrid

Considering the 90-day investment horizon DTE Energy is expected to generate 0.79 times more return on investment than Avangrid. However, DTE Energy is 1.27 times less risky than Avangrid. It trades about 0.0 of its potential returns per unit of risk. Avangrid is currently generating about -0.01 per unit of risk. If you would invest  12,354  in DTE Energy on February 23, 2024 and sell it today you would lose (848.00) from holding DTE Energy or give up 6.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

DTE Energy  vs.  Avangrid

DTE Energy

Risk-Adjusted Performance

7 of 100

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 weak basic indicators, DTE Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Avangrid

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avangrid are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Avangrid reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DTE Energy and Avangrid

The main advantage of trading using opposite DTE Energy and Avangrid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DTE Energy position performs unexpectedly, Avangrid 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 Avangrid will offset losses from the drop in Avangrid's long position.

The idea behind DTE Energy and Avangrid 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.