Correlation Between DTE Energy and Azure Power

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

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

Diversification Opportunities for DTE Energy and Azure Power

0.71

Correlation Coefficient

DTE Energy  Azure Power

Poor diversification

The 3 months correlation between DTE and Azure is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding DTE Energy Co and Azure Power Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azure Power Global and DTE 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 DTE Energy Co are associated (or correlated) with Azure Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azure Power Global has no effect on the direction of DTE Energy i.e., DTE Energy and Azure Power go up and down completely randomly.

Pair Corralation between DTE Energy and Azure Power

Considering the 90-day investment horizon DTE Energy Co is expected to generate 0.1 times more return on investment than Azure Power. However, DTE Energy Co is 10.52 times less risky than Azure Power. It trades about 0.03 of its potential returns per unit of risk. Azure Power Global is currently generating about -0.13 per unit of risk. If you would invest  2,016  in DTE Energy Co on September 9, 2024 and sell it today you would earn a total of  259.00  from holding DTE Energy Co or generate 12.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	28.83%
Values	Daily Returns

DTE Energy Co  vs.  Azure Power Global

DTE Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DTE Energy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, DTE Energy is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Azure Power Global

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with DTE Energy and Azure Power

The main advantage of trading using opposite DTE Energy and Azure Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DTE Energy position performs unexpectedly, Azure Power 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 Azure Power will offset losses from the drop in Azure Power's long position.

The idea behind DTE Energy Co and Azure Power Global 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.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.