Correlation Between BYD Company and Tesla

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Can any of the company-specific risk be diversified away by investing in both BYD Company 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 BYD Company and Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BYD Company Limited and Tesla Inc, you can compare the effects of market volatilities on BYD Company 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 BYD Company with a short position of Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Company and Tesla.

Diversification Opportunities for BYD Company and Tesla

-0.53
  Correlation Coefficient

Excellent diversification

The 3 months correlation between BYD and Tesla is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding BYD Company Limited and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and BYD Company 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 BYD Company Limited 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 BYD Company i.e., BYD Company and Tesla go up and down completely randomly.

Pair Corralation between BYD Company and Tesla

Assuming the 90 days trading horizon BYD Company is expected to generate 1.08 times less return on investment than Tesla. But when comparing it to its historical volatility, BYD Company Limited is 1.38 times less risky than Tesla. It trades about 0.12 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  16,190  in Tesla Inc on November 28, 2024 and sell it today you would earn a total of  12,460  from holding Tesla Inc or generate 76.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

BYD Company Limited  vs.  Tesla Inc

 Performance 
       Timeline  
BYD Limited 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in BYD Company Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, BYD Company reported solid returns over the last few months and may actually be approaching a breakup point.
Tesla Inc 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Tesla Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

BYD Company and Tesla Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BYD Company and Tesla

The main advantage of trading using opposite BYD Company and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Company 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.
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The idea behind BYD Company Limited and Tesla Inc 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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