Correlation Between DTE Energy and Caribbean Utilities

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

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

Diversification Opportunities for DTE Energy and Caribbean Utilities

-0.58

Correlation Coefficient

DTE Energy  Caribbean Utilities

Excellent diversification

The 3 months correlation between DTE and Caribbean is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding DTE Energy Co and Caribbean Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caribbean Utilities 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 Co are associated (or correlated) with Caribbean Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caribbean Utilities has no effect on the direction of DTE Energy i.e., DTE Energy and Caribbean Utilities go up and down completely randomly.

Pair Corralation between DTE Energy and Caribbean Utilities

Considering the 90-day investment horizon DTE Energy Co is expected to under-perform the Caribbean Utilities. But the stock apears to be less risky and, when comparing its historical volatility, DTE Energy Co is 1.76 times less risky than Caribbean Utilities. The stock trades about -0.08 of its potential returns per unit of risk. The Caribbean Utilities is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,174  in Caribbean Utilities on February 22, 2024 and sell it today you would earn a total of  216.00  from holding Caribbean Utilities or generate 18.4% return on investment over 90 days.

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

DTE Energy Co  vs.  Caribbean Utilities

DTE Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DTE Energy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, DTE Energy is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Caribbean Utilities

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caribbean Utilities are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Caribbean Utilities reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DTE Energy and Caribbean Utilities

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

The idea behind DTE Energy Co and Caribbean Utilities 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..