Correlation Between Southern and DTE Energy
Can any of the company-specific risk be diversified away by investing in both Southern 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 Southern and DTE Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Company and DTE Energy Co, you can compare the effects of market volatilities on Southern 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 Southern with a short position of DTE Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and DTE Energy.
Diversification Opportunities for Southern and DTE Energy
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southern and DTE is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and DTE Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Southern 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 Southern Company 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 Southern i.e., Southern and DTE Energy go up and down completely randomly.
Pair Corralation between Southern and DTE Energy
Allowing for the 90-day total investment horizon Southern Company is expected to generate 1.32 times more return on investment than DTE Energy. However, Southern is 1.32 times more volatile than DTE Energy Co. It trades about 0.07 of its potential returns per unit of risk. DTE Energy Co is currently generating about 0.03 per unit of risk. If you would invest 8,207 in Southern Company on November 3, 2024 and sell it today you would earn a total of 188.00 from holding Southern Company or generate 2.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Company vs. DTE Energy Co
Performance |
| Timeline |
| Southern |
| DTE Energy |
Southern and DTE Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern and DTE Energy
The main advantage of trading using opposite Southern and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern 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.| Southern vs. Dominion Energy | Southern vs. American Electric Power | Southern vs. Nextera Energy | Southern vs. Consolidated Edison |
| DTE Energy vs. Southern Co | DTE Energy vs. Duke Energy Corp | DTE Energy vs. Georgia Power Co | DTE Energy vs. Entergy Arkansas LLC |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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