Correlation Between PNM Resources and DTE Energy

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

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

Diversification Opportunities for PNM Resources and DTE Energy

-0.22

Correlation Coefficient

PNM Resources  DTE Energy

Very good diversification

The 3 months correlation between PNM and DTE is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding PNM Resources and DTE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTE Energy and PNM Resources 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 PNM Resources 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 PNM Resources i.e., PNM Resources and DTE Energy go up and down completely randomly.

Pair Corralation between PNM Resources and DTE Energy

Considering the 90-day investment horizon PNM Resources is expected to generate 0.74 times more return on investment than DTE Energy. However, PNM Resources is 1.35 times less risky than DTE Energy. It trades about 0.22 of its potential returns per unit of risk. DTE Energy is currently generating about 0.02 per unit of risk. If you would invest  4,138  in PNM Resources on August 31, 2024 and sell it today you would earn a total of  187.00  from holding PNM Resources or generate 4.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	39.68%
Values	Daily Returns

PNM Resources  vs.  DTE Energy

PNM Resources

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days PNM Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, PNM Resources may actually be approaching a critical reversion point that can send shares even higher in December 2024.

DTE Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DTE Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, DTE Energy is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with PNM Resources and DTE Energy

The main advantage of trading using opposite PNM Resources and DTE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PNM Resources 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 PNM Resources 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.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.