Correlation Between EMCOR and Tesla
Can any of the company-specific risk be diversified away by investing in both EMCOR 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 EMCOR and Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EMCOR Group and Tesla Inc, you can compare the effects of market volatilities on EMCOR 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 EMCOR with a short position of Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of EMCOR and Tesla.
Diversification Opportunities for EMCOR and Tesla
Very poor diversification
The 3 months correlation between EMCOR and Tesla is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding EMCOR Group and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and EMCOR 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 EMCOR Group 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 EMCOR i.e., EMCOR and Tesla go up and down completely randomly.
Pair Corralation between EMCOR and Tesla
Considering the 90-day investment horizon EMCOR is expected to generate 1.55 times less return on investment than Tesla. But when comparing it to its historical volatility, EMCOR Group is 2.7 times less risky than Tesla. It trades about 0.33 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 21,060 in Tesla Inc on September 2, 2024 and sell it today you would earn a total of 13,456 from holding Tesla Inc or generate 63.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
EMCOR Group vs. Tesla Inc
Performance |
| Timeline |
| EMCOR Group |
| Tesla Inc |
EMCOR and Tesla Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EMCOR and Tesla
The main advantage of trading using opposite EMCOR and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EMCOR 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.The idea behind EMCOR Group 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.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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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