Can any of the company-specific risk be diversified away by investing in both DTE Energy and Centrais Elétricas 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 Centrais Elétricas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DTE Energy and Centrais Eltricas Brasileiras, you can compare the effects of market volatilities on DTE Energy and Centrais Elétricas 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 Centrais Elétricas. Check out your portfolio center. Please also check ongoing floating volatility patterns of DTE Energy and Centrais Elétricas.
Diversification Opportunities for DTE Energy and Centrais Elétricas
The 3 months correlation between DTE and Centrais is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding DTE Energy and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Elétricas 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 Centrais Elétricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Elétricas has no effect on the direction of DTE Energy i.e., DTE Energy and Centrais Elétricas go up and down completely randomly.
Pair Corralation between DTE Energy and Centrais Elétricas
Considering the 90-day investment horizon DTE Energy is expected to generate 0.75 times more return on investment than Centrais Elétricas. However, DTE Energy is 1.33 times less risky than Centrais Elétricas. It trades about 0.12 of its potential returns per unit of risk. Centrais Eltricas Brasileiras is currently generating about -0.27 per unit of risk. If you would invest 11,249 in DTE Energy on March 6, 2024 and sell it today you would earn a total of 370.00 from holding DTE Energy or generate 3.29% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in DTE Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, DTE Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
Over the last 90 days Centrais Eltricas Brasileiras has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.