Correlation Between Affiliated Managers and DTE Energy

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

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

Diversification Opportunities for Affiliated Managers and DTE Energy

0.9

Correlation Coefficient

Affiliated Managers  DTE Energy

Almost no diversification

The 3 months correlation between Affiliated and DTE is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Affiliated Managers Group, and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and Affiliated Managers 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 Affiliated Managers 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 Affiliated Managers i.e., Affiliated Managers and DTE Energy go up and down completely randomly.

Pair Corralation between Affiliated Managers and DTE Energy

Given the investment horizon of 90 days Affiliated Managers Group, is expected to generate 1.09 times more return on investment than DTE Energy. However, Affiliated Managers is 1.09 times more volatile than DTE Energy. It trades about -0.01 of its potential returns per unit of risk. DTE Energy is currently generating about -0.06 per unit of risk. If you would invest  1,926  in Affiliated Managers Group, on August 31, 2024 and sell it today you would lose (15.00) from holding Affiliated Managers Group, or give up 0.78% of portfolio value over 90 days.

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

Affiliated Managers Group,  vs.  DTE Energy

Affiliated Managers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Affiliated Managers Group, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Affiliated Managers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 Affiliated Managers and DTE Energy

The main advantage of trading using opposite Affiliated Managers and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Affiliated Managers 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 Affiliated Managers 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.