Correlation Between Avis Budget and DTE Energy

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

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

Diversification Opportunities for Avis Budget and DTE Energy

-0.6

Correlation Coefficient

Avis Budget  DTE Energy

Excellent diversification

The 3 months correlation between Avis and DTE is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Avis Budget Group and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Avis Budget 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 Avis Budget Group 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 Avis Budget i.e., Avis Budget and DTE Energy go up and down completely randomly.

Pair Corralation between Avis Budget and DTE Energy

Considering the 90-day investment horizon Avis Budget Group is expected to under-perform the DTE Energy. In addition to that, Avis Budget is 3.78 times more volatile than DTE Energy. It trades about -0.04 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  1,906  in DTE Energy on September 3, 2024 and sell it today you would earn a total of  54.00  from holding DTE Energy or generate 2.83% return on investment over 90 days.

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

Avis Budget Group  vs.  DTE Energy

Avis Budget Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avis Budget Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Avis Budget reported solid returns over the last few months and may actually be approaching a breakup point.

DTE Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DTE Energy has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Avis Budget and DTE Energy

The main advantage of trading using opposite Avis Budget and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avis Budget 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 Avis Budget Group 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.