Correlation Between Xiaomi and Tesla

Can any of the company-specific risk be diversified away by investing in both Xiaomi and Tesla 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 Xiaomi and Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xiaomi and Tesla Inc, you can compare the effects of market volatilities on Xiaomi and Tesla 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 Xiaomi with a short position of Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiaomi and Tesla.

Diversification Opportunities for Xiaomi and Tesla

0.75

Correlation Coefficient

Xiaomi  Tesla

Poor diversification

The 3 months correlation between Xiaomi and Tesla is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Xiaomi and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and Xiaomi 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 Xiaomi are associated (or correlated) with Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of Xiaomi i.e., Xiaomi and Tesla go up and down completely randomly.

Pair Corralation between Xiaomi and Tesla

Assuming the 90 days trading horizon Xiaomi is expected to generate 0.83 times more return on investment than Tesla. However, Xiaomi is 1.2 times less risky than Tesla. It trades about 0.24 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.04 per unit of risk. If you would invest  8,200  in Xiaomi on October 9, 2024 and sell it today you would earn a total of  1,500  from holding Xiaomi or generate 18.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Xiaomi  vs.  Tesla Inc

Xiaomi

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Xiaomi displayed solid returns over the last few months and may actually be approaching a breakup point.

Tesla Inc

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Tesla showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xiaomi and Tesla

The main advantage of trading using opposite Xiaomi and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xiaomi position performs unexpectedly, Tesla 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 Tesla will offset losses from the drop in Tesla's long position.

The idea behind Xiaomi and Tesla Inc 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.