Correlation Between Tesla and Blue Moon
Can any of the company-specific risk be diversified away by investing in both Tesla and Blue Moon 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 Blue Moon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and Blue Moon Metals, you can compare the effects of market volatilities on Tesla and Blue Moon 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 Blue Moon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and Blue Moon.
Diversification Opportunities for Tesla and Blue Moon
Poor diversification
The 3 months correlation between Tesla and Blue is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Blue Moon Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Moon Metals 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 Blue Moon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Moon Metals has no effect on the direction of Tesla i.e., Tesla and Blue Moon go up and down completely randomly.
Pair Corralation between Tesla and Blue Moon
Given the investment horizon of 90 days Tesla is expected to generate 11.73 times less return on investment than Blue Moon. But when comparing it to its historical volatility, Tesla Inc is 11.67 times less risky than Blue Moon. It trades about 0.05 of its potential returns per unit of risk. Blue Moon Metals is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 15.00 in Blue Moon Metals on August 27, 2024 and sell it today you would earn a total of 9.00 from holding Blue Moon Metals or generate 60.0% 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. Blue Moon Metals
Performance |
| Timeline |
| Tesla Inc |
| Blue Moon Metals |
Tesla and Blue Moon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tesla and Blue Moon
The main advantage of trading using opposite Tesla and Blue Moon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, Blue Moon 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 Blue Moon will offset losses from the drop in Blue Moon's long position.The idea behind Tesla Inc and Blue Moon Metals 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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