Correlation Between MGE Energy and DTE Energy

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

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

Diversification Opportunities for MGE Energy and DTE Energy

0.81

Correlation Coefficient

MGE Energy  DTE Energy

Very poor diversification

The 3 months correlation between MGE and DTE is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding MGE Energy and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and MGE 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 MGE Energy 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 MGE Energy i.e., MGE Energy and DTE Energy go up and down completely randomly.

Pair Corralation between MGE Energy and DTE Energy

Given the investment horizon of 90 days MGE Energy is expected to generate 1.14 times less return on investment than DTE Energy. In addition to that, MGE Energy is 1.44 times more volatile than DTE Energy. It trades about 0.01 of its total potential returns per unit of risk. DTE Energy is currently generating about 0.02 per unit of volatility. If you would invest  10,653  in DTE Energy on March 21, 2024 and sell it today you would earn a total of  404.00  from holding DTE Energy or generate 3.79% return on investment over 90 days.

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

MGE Energy  vs.  DTE Energy

MGE Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGE Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, MGE Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

DTE Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DTE Energy are ranked lower than 2 (%) 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.

Pair Trading with MGE Energy and DTE Energy

The main advantage of trading using opposite MGE Energy and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MGE Energy 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 MGE Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.