Correlation Between Otter Tail and DTE Energy

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

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

Diversification Opportunities for Otter Tail and DTE Energy

-0.83

Correlation Coefficient

Otter Tail  DTE Energy

Pay attention - limited upside

The 3 months correlation between Otter and DTE is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Otter Tail and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Otter Tail 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 Otter Tail 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 Otter Tail i.e., Otter Tail and DTE Energy go up and down completely randomly.

Pair Corralation between Otter Tail and DTE Energy

Given the investment horizon of 90 days Otter Tail is expected to under-perform the DTE Energy. In addition to that, Otter Tail is 1.37 times more volatile than DTE Energy. It trades about -0.06 of its total potential returns per unit of risk. DTE Energy is currently generating about 0.12 per unit of volatility. If you would invest  12,568  in DTE Energy on July 19, 2024 and sell it today you would earn a total of  279.00  from holding DTE Energy or generate 2.22% return on investment over 90 days.

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

Otter Tail  vs.  DTE Energy

Otter Tail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Otter Tail has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in November 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

DTE Energy

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DTE Energy are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DTE Energy may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Otter Tail and DTE Energy

The main advantage of trading using opposite Otter Tail and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Otter Tail 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 Otter Tail 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.