Correlation Between Tesla and Prudential Financial
Can any of the company-specific risk be diversified away by investing in both Tesla and Prudential Financial 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 Prudential Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and Prudential Financial, you can compare the effects of market volatilities on Tesla and Prudential Financial 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 Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and Prudential Financial.
Diversification Opportunities for Tesla and Prudential Financial
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tesla and Prudential is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 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 Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of Tesla i.e., Tesla and Prudential Financial go up and down completely randomly.
Pair Corralation between Tesla and Prudential Financial
Assuming the 90 days horizon Tesla Inc is expected to generate 2.68 times more return on investment than Prudential Financial. However, Tesla is 2.68 times more volatile than Prudential Financial. It trades about 0.15 of its potential returns per unit of risk. Prudential Financial is currently generating about 0.08 per unit of risk. If you would invest 16,136 in Tesla Inc on September 3, 2024 and sell it today you would earn a total of 16,439 from holding Tesla Inc or generate 101.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tesla Inc vs. Prudential Financial
Performance |
| Timeline |
| Tesla Inc |
| Prudential Financial |
Tesla and Prudential Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tesla and Prudential Financial
The main advantage of trading using opposite Tesla and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, Prudential Financial 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 Prudential Financial will offset losses from the drop in Prudential Financial's long position.The idea behind Tesla Inc and Prudential Financial 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.| Prudential Financial vs. Ping An Insurance | Prudential Financial vs. China Life Insurance | Prudential Financial vs. Superior Plus Corp | Prudential Financial vs. Origin Agritech |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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