Correlation Between Flex and Tesla
Can any of the company-specific risk be diversified away by investing in both Flex 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 Flex and Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Flex and Tesla Inc, you can compare the effects of market volatilities on Flex 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 Flex with a short position of Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of Flex and Tesla.
Diversification Opportunities for Flex and Tesla
Very poor diversification
The 3 months correlation between Flex and Tesla is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Flex and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and Flex 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 Flex 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 Flex i.e., Flex and Tesla go up and down completely randomly.
Pair Corralation between Flex and Tesla
Given the investment horizon of 90 days Flex is expected to generate 4.25 times less return on investment than Tesla. But when comparing it to its historical volatility, Flex is 1.74 times less risky than Tesla. It trades about 0.06 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 17,500 in Tesla Inc on September 3, 2024 and sell it today you would earn a total of 17,016 from holding Tesla Inc or generate 97.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Flex vs. Tesla Inc
Performance |
| Timeline |
| Flex |
| Tesla Inc |
Flex and Tesla Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Flex and Tesla
The main advantage of trading using opposite Flex and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flex 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 Flex 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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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