Correlation Between MERCEDES-BENZ GRP and Tesla

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

By analyzing existing cross correlation between MERCEDES BENZ GRP ADR14 and Tesla Inc, you can compare the effects of market volatilities on MERCEDES-BENZ GRP 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 MERCEDES-BENZ GRP with a short position of Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of MERCEDES-BENZ GRP and Tesla.

Diversification Opportunities for MERCEDES-BENZ GRP and Tesla

-0.64

Correlation Coefficient

MERCEDES-BENZ GRP  Tesla

Excellent diversification

The 3 months correlation between MERCEDES-BENZ and Tesla is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding MERCEDES BENZ GRP ADR14 and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and MERCEDES-BENZ GRP 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 MERCEDES BENZ GRP ADR14 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 MERCEDES-BENZ GRP i.e., MERCEDES-BENZ GRP and Tesla go up and down completely randomly.

Pair Corralation between MERCEDES-BENZ GRP and Tesla

Assuming the 90 days trading horizon MERCEDES-BENZ GRP is expected to generate 10.71 times less return on investment than Tesla. But when comparing it to its historical volatility, MERCEDES BENZ GRP ADR14 is 1.41 times less risky than Tesla. It trades about 0.04 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  32,500  in Tesla Inc on September 25, 2024 and sell it today you would earn a total of  7,780  from holding Tesla Inc or generate 23.94% return on investment over 90 days.

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

MERCEDES BENZ GRP ADR14  vs.  Tesla Inc

MERCEDES BENZ GRP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MERCEDES BENZ GRP ADR14 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, MERCEDES-BENZ GRP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Tesla Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tesla reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MERCEDES-BENZ GRP and Tesla

The main advantage of trading using opposite MERCEDES-BENZ GRP and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MERCEDES-BENZ GRP 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 MERCEDES BENZ GRP ADR14 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.