Correlation Between Ford and Tesla
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Tesla Inc, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Tesla.
Diversification Opportunities for Ford and Tesla
Poor diversification
The 3 months correlation between Ford and Tesla is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and Ford 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 Ford Motor 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 Ford i.e., Ford and Tesla go up and down completely randomly.
Pair Corralation between Ford and Tesla
Given the investment horizon of 90 days Ford is expected to generate 5.28 times less return on investment than Tesla. But when comparing it to its historical volatility, Ford Motor is 1.75 times less risky than Tesla. It trades about 0.04 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 343,650 in Tesla Inc on August 27, 2024 and sell it today you would earn a total of 378,353 from holding Tesla Inc or generate 110.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Tesla Inc
Performance |
| Timeline |
| Ford Motor |
| Tesla Inc |
Ford and Tesla Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Tesla
The main advantage of trading using opposite Ford and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.| Tesla vs. Capital One Financial | Tesla vs. Lloyds Banking Group | Tesla vs. KB Home | Tesla vs. Southwest Airlines |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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