Correlation Between Southern Company and DTE Energy

Can any of the company-specific risk be diversified away by investing in both Southern Company 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 Company 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 Series and DTE Energy, you can compare the effects of market volatilities on Southern Company 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 Company with a short position of DTE Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Company and DTE Energy.

Diversification Opportunities for Southern Company and DTE Energy

0.84

Correlation Coefficient

Southern Company  DTE Energy

Very poor diversification

The 3 months correlation between Southern and DTE is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company Series and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Southern Company 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 Series 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 Company i.e., Southern Company and DTE Energy go up and down completely randomly.

Pair Corralation between Southern Company and DTE Energy

Given the investment horizon of 90 days Southern Company Series is expected to generate 1.08 times more return on investment than DTE Energy. However, Southern Company is 1.08 times more volatile than DTE Energy. It trades about 0.11 of its potential returns per unit of risk. DTE Energy is currently generating about 0.06 per unit of risk. If you would invest  1,724  in Southern Company Series on May 5, 2025 and sell it today you would earn a total of  79.00  from holding Southern Company Series or generate 4.58% return on investment over 90 days.

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

Southern Company Series  vs.  DTE Energy

Southern Company

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Company Series are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking indicators, Southern Company 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

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DTE Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, DTE Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Southern Company and DTE Energy

The main advantage of trading using opposite Southern Company and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Company 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 Southern Company Series 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.