Correlation Between British American and Tesla
Can any of the company-specific risk be diversified away by investing in both British American and Tesla 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 British American and Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Tesla Inc, you can compare the effects of market volatilities on British American and Tesla 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 British American with a short position of Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Tesla.
Diversification Opportunities for British American and Tesla
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between British and Tesla is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and British American 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 British American Tobacco are associated (or correlated) with Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of British American i.e., British American and Tesla go up and down completely randomly.
Pair Corralation between British American and Tesla
Assuming the 90 days trading horizon British American is expected to generate 2.51 times less return on investment than Tesla. But when comparing it to its historical volatility, British American Tobacco is 6.83 times less risky than Tesla. It trades about 0.72 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 23,900 in Tesla Inc on August 30, 2024 and sell it today you would earn a total of 7,650 from holding Tesla Inc or generate 32.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
British American Tobacco vs. Tesla Inc
Performance |
| Timeline |
| British American Tobacco |
| Tesla Inc |
British American and Tesla Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Tesla
The main advantage of trading using opposite British American and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Tesla 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 Tesla will offset losses from the drop in Tesla's long position.| British American vs. JAPAN TOBACCO UNSPADR12 | British American vs. Superior Plus Corp | British American vs. NMI Holdings | British American vs. SIVERS SEMICONDUCTORS AB |
| Tesla vs. Bausch Health Companies | Tesla vs. Sabra Health Care | Tesla vs. YOOMA WELLNESS INC | Tesla vs. EHEALTH |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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