Correlation Between Tesla and BYD Company
Can any of the company-specific risk be diversified away by investing in both Tesla and BYD Company 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 Tesla and BYD Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and BYD Company Limited, you can compare the effects of market volatilities on Tesla and BYD Company 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 Tesla with a short position of BYD Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and BYD Company.
Diversification Opportunities for Tesla and BYD Company
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Tesla and BYD is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and BYD Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Limited and Tesla 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 Tesla Inc are associated (or correlated) with BYD Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Limited has no effect on the direction of Tesla i.e., Tesla and BYD Company go up and down completely randomly.
Pair Corralation between Tesla and BYD Company
Assuming the 90 days horizon Tesla Inc is expected to generate 2.28 times more return on investment than BYD Company. However, Tesla is 2.28 times more volatile than BYD Company Limited. It trades about 0.34 of its potential returns per unit of risk. BYD Company Limited is currently generating about -0.07 per unit of risk. If you would invest 22,945 in Tesla Inc on September 1, 2024 and sell it today you would earn a total of 9,630 from holding Tesla Inc or generate 41.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tesla Inc vs. BYD Company Limited
Performance |
| Timeline |
| Tesla Inc |
| BYD Limited |
Tesla and BYD Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tesla and BYD Company
The main advantage of trading using opposite Tesla and BYD Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, BYD Company 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 BYD Company will offset losses from the drop in BYD Company's long position.| Tesla vs. PennantPark Investment | Tesla vs. DIVERSIFIED ROYALTY | Tesla vs. Harmony Gold Mining | Tesla vs. VARIOUS EATERIES LS |
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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