Correlation Between Target and Tesla

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

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

Diversification Opportunities for Target and Tesla

0.92

Correlation Coefficient

Target  Tesla

Almost no diversification

The 3 months correlation between Target and Tesla is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Target and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and Target 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 Target 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 Target i.e., Target and Tesla go up and down completely randomly.

Pair Corralation between Target and Tesla

Assuming the 90 days trading horizon Target is expected to generate 0.45 times more return on investment than Tesla. However, Target is 2.23 times less risky than Tesla. It trades about -0.24 of its potential returns per unit of risk. Tesla Inc is currently generating about -0.16 per unit of risk. If you would invest  82,416  in Target on December 29, 2024 and sell it today you would lose (22,816) from holding Target or give up 27.68% of portfolio value over 90 days.

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

Target  vs.  Tesla Inc

Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Tesla Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tesla Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Target and Tesla

The main advantage of trading using opposite Target and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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 Target 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.