Correlation Between Tesla and First Trust
Can any of the company-specific risk be diversified away by investing in both Tesla and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and First Trust Small, you can compare the effects of market volatilities on Tesla and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and First Trust.
Diversification Opportunities for Tesla and First Trust
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Tesla and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and First Trust Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Small 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Small has no effect on the direction of Tesla i.e., Tesla and First Trust go up and down completely randomly.
Pair Corralation between Tesla and First Trust
Given the investment horizon of 90 days Tesla Inc is expected to generate 2.77 times more return on investment than First Trust. However, Tesla is 2.77 times more volatile than First Trust Small. It trades about 0.31 of its potential returns per unit of risk. First Trust Small 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 9,005 from holding Tesla Inc or generate 34.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tesla Inc vs. First Trust Small
Performance |
| Timeline |
| Tesla Inc |
| First Trust Small |
Tesla and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tesla and First Trust
The main advantage of trading using opposite Tesla and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.The idea behind Tesla Inc and First Trust Small 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.| First Trust vs. First Trust Mid | First Trust vs. First Trust Large | First Trust vs. First Trust Large | First Trust vs. First Trust Large |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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