Correlation Between Tesla and Cabot
Can any of the company-specific risk be diversified away by investing in both Tesla and Cabot 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 Cabot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and Cabot, you can compare the effects of market volatilities on Tesla and Cabot 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 Cabot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and Cabot.
Diversification Opportunities for Tesla and Cabot
Weak diversification
The 3 months correlation between Tesla and Cabot is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Cabot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabot 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 Cabot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabot has no effect on the direction of Tesla i.e., Tesla and Cabot go up and down completely randomly.
Pair Corralation between Tesla and Cabot
Given the investment horizon of 90 days Tesla Inc is expected to generate 2.26 times more return on investment than Cabot. However, Tesla is 2.26 times more volatile than Cabot. It trades about 0.26 of its potential returns per unit of risk. Cabot is currently generating about 0.07 per unit of risk. If you would invest 26,251 in Tesla Inc on August 28, 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 | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tesla Inc vs. Cabot
Performance |
| Timeline |
| Tesla Inc |
| Cabot |
Tesla and Cabot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tesla and Cabot
The main advantage of trading using opposite Tesla and Cabot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, Cabot 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 Cabot will offset losses from the drop in Cabot's long position.The idea behind Tesla Inc and Cabot 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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