Correlation Between Microsoft and Tesla
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Tesla Inc, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Tesla.
Diversification Opportunities for Microsoft and Tesla
Poor diversification
The 3 months correlation between Microsoft and Tesla is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Tesla go up and down completely randomly.
Pair Corralation between Microsoft and Tesla
Assuming the 90 days trading horizon Microsoft is expected to generate 11.38 times less return on investment than Tesla. But when comparing it to its historical volatility, Microsoft is 2.79 times less risky than Tesla. It trades about 0.04 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 16,162 in Tesla Inc on September 3, 2024 and sell it today you would earn a total of 15,988 from holding Tesla Inc or generate 98.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Tesla Inc
Performance |
| Timeline |
| Microsoft |
| Tesla Inc |
Microsoft and Tesla Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Tesla
The main advantage of trading using opposite Microsoft and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. ATRYS HEALTH SA | Microsoft vs. CHINA TONTINE WINES | Microsoft vs. Cardinal Health | Microsoft vs. National Health Investors |
| Tesla vs. Methode Electronics | Tesla vs. KENNAMETAL INC | Tesla vs. Nucletron Electronic Aktiengesellschaft | Tesla vs. Meiko Electronics Co |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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