Correlation Between Tesla and Allegiant Travel
Can any of the company-specific risk be diversified away by investing in both Tesla and Allegiant Travel 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 Allegiant Travel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and Allegiant Travel, you can compare the effects of market volatilities on Tesla and Allegiant Travel 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 Allegiant Travel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and Allegiant Travel.
Diversification Opportunities for Tesla and Allegiant Travel
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tesla and Allegiant is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Allegiant Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegiant Travel 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 Allegiant Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegiant Travel has no effect on the direction of Tesla i.e., Tesla and Allegiant Travel go up and down completely randomly.
Pair Corralation between Tesla and Allegiant Travel
Given the investment horizon of 90 days Tesla Inc is expected to generate 1.28 times more return on investment than Allegiant Travel. However, Tesla is 1.28 times more volatile than Allegiant Travel. It trades about 0.26 of its potential returns per unit of risk. Allegiant Travel is currently generating about 0.28 per unit of risk. If you would invest 26,251 in Tesla Inc on August 27, 2024 and sell it today you would earn a total of 7,608 from holding Tesla Inc or generate 28.98% 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. Allegiant Travel
Performance |
| Timeline |
| Tesla Inc |
| Allegiant Travel |
Tesla and Allegiant Travel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tesla and Allegiant Travel
The main advantage of trading using opposite Tesla and Allegiant Travel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, Allegiant Travel 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 Allegiant Travel will offset losses from the drop in Allegiant Travel's long position.The idea behind Tesla Inc and Allegiant Travel 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.| Allegiant Travel vs. Azul SA | Allegiant Travel vs. Alaska Air Group | Allegiant Travel vs. International Consolidated Airlines | Allegiant Travel vs. Sun Country 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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