Correlation Between DTE Energy and Frontdoor

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

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

Diversification Opportunities for DTE Energy and Frontdoor

0.02

Correlation Coefficient

DTE Energy  Frontdoor

Significant diversification

The 3 months correlation between DTE and Frontdoor is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding DTE Energy and Frontdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontdoor 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 Frontdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontdoor has no effect on the direction of DTE Energy i.e., DTE Energy and Frontdoor go up and down completely randomly.

Pair Corralation between DTE Energy and Frontdoor

Considering the 90-day investment horizon DTE Energy is expected to generate 4.95 times less return on investment than Frontdoor. But when comparing it to its historical volatility, DTE Energy is 2.45 times less risky than Frontdoor. It trades about 0.17 of its potential returns per unit of risk. Frontdoor is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  3,021  in Frontdoor on February 14, 2024 and sell it today you would earn a total of  605.00  from holding Frontdoor or generate 20.03% return on investment over 90 days.

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

DTE Energy  vs.  Frontdoor

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 latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Frontdoor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Frontdoor are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental indicators, Frontdoor may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with DTE Energy and Frontdoor

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

The idea behind DTE Energy and Frontdoor 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.