Correlation Between IncomeShares SP500 and IncomeShares Tesla

Can any of the company-specific risk be diversified away by investing in both IncomeShares SP500 and IncomeShares 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 IncomeShares SP500 and IncomeShares Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IncomeShares SP500 Options and IncomeShares Tesla TSLA, you can compare the effects of market volatilities on IncomeShares SP500 and IncomeShares 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 IncomeShares SP500 with a short position of IncomeShares Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of IncomeShares SP500 and IncomeShares Tesla.

Diversification Opportunities for IncomeShares SP500 and IncomeShares Tesla

0.29

Correlation Coefficient

IncomeShares SP500  IncomeShares Tesla

Modest diversification

The 3 months correlation between IncomeShares and IncomeShares is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding IncomeShares SP500 Options and IncomeShares Tesla TSLA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IncomeShares Tesla TSLA and IncomeShares SP500 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 IncomeShares SP500 Options are associated (or correlated) with IncomeShares Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IncomeShares Tesla TSLA has no effect on the direction of IncomeShares SP500 i.e., IncomeShares SP500 and IncomeShares Tesla go up and down completely randomly.

Pair Corralation between IncomeShares SP500 and IncomeShares Tesla

Assuming the 90 days trading horizon IncomeShares SP500 is expected to generate 13.9 times less return on investment than IncomeShares Tesla. But when comparing it to its historical volatility, IncomeShares SP500 Options is 3.75 times less risky than IncomeShares Tesla. It trades about 0.03 of its potential returns per unit of risk. IncomeShares Tesla TSLA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  778.00  in IncomeShares Tesla TSLA on October 10, 2024 and sell it today you would earn a total of  38.00  from holding IncomeShares Tesla TSLA or generate 4.88% return on investment over 90 days.

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

IncomeShares SP500 Options  vs.  IncomeShares Tesla TSLA

IncomeShares SP500

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IncomeShares SP500 Options are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IncomeShares SP500 is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

IncomeShares Tesla TSLA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in IncomeShares Tesla TSLA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward indicators, IncomeShares Tesla may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IncomeShares SP500 and IncomeShares Tesla

The main advantage of trading using opposite IncomeShares SP500 and IncomeShares Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IncomeShares SP500 position performs unexpectedly, IncomeShares 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 IncomeShares Tesla will offset losses from the drop in IncomeShares Tesla's long position.

The idea behind IncomeShares SP500 Options and IncomeShares Tesla TSLA 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..