Correlation Between PSI All and Tesla

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

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

Diversification Opportunities for PSI All and Tesla

-0.84

Correlation Coefficient

PSI All  Tesla

Pay attention - limited upside

The 3 months correlation between PSI and Tesla is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding PSI All Share and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and PSI All 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 PSI All Share 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 PSI All i.e., PSI All and Tesla go up and down completely randomly.

Pair Corralation between PSI All and Tesla

Assuming the 90 days trading horizon PSI All Share is expected to under-perform the Tesla. But the index apears to be less risky and, when comparing its historical volatility, PSI All Share is 4.27 times less risky than Tesla. The index trades about -0.04 of its potential returns per unit of risk. The Tesla Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  24,714  in Tesla Inc on September 15, 2024 and sell it today you would earn a total of  18,909  from holding Tesla Inc or generate 76.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

PSI All Share  vs.  Tesla Inc

Pair Trading with PSI All and Tesla

The main advantage of trading using opposite PSI All and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PSI All 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 PSI All Share 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.

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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.