Correlation Between Tesla and PPT
Can any of the company-specific risk be diversified away by investing in both Tesla and PPT 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 PPT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and PPT, you can compare the effects of market volatilities on Tesla and PPT 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 PPT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and PPT.
Diversification Opportunities for Tesla and PPT
Almost no diversification
The 3 months correlation between Tesla and PPT is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and PPT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPT 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 PPT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPT has no effect on the direction of Tesla i.e., Tesla and PPT go up and down completely randomly.
Pair Corralation between Tesla and PPT
Given the investment horizon of 90 days Tesla is expected to generate 9.61 times less return on investment than PPT. But when comparing it to its historical volatility, Tesla Inc is 6.31 times less risky than PPT. It trades about 0.05 of its potential returns per unit of risk. PPT is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 5.58 in PPT on August 27, 2024 and sell it today you would lose (1.47) from holding PPT or give up 26.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 56.04% |
| Values | Daily Returns |
Tesla Inc vs. PPT
Performance |
| Timeline |
| Tesla Inc |
| PPT |
Tesla and PPT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tesla and PPT
The main advantage of trading using opposite Tesla and PPT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, PPT 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 PPT will offset losses from the drop in PPT's long position.The idea behind Tesla Inc and PPT 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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