Correlation Between Tesla and Imperial Brands

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

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

Diversification Opportunities for Tesla and Imperial Brands

0.87

Correlation Coefficient

Tesla  Imperial Brands

Very poor diversification

The 3 months correlation between Tesla and Imperial is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Imperial Brands PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Brands PLC and Tesla 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 Tesla Inc are associated (or correlated) with Imperial Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Brands PLC has no effect on the direction of Tesla i.e., Tesla and Imperial Brands go up and down completely randomly.

Pair Corralation between Tesla and Imperial Brands

Assuming the 90 days trading horizon Tesla Inc is expected to generate 4.62 times more return on investment than Imperial Brands. However, Tesla is 4.62 times more volatile than Imperial Brands PLC. It trades about 0.32 of its potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.22 per unit of risk. If you would invest  33,910  in Tesla Inc on September 23, 2024 and sell it today you would earn a total of  8,515  from holding Tesla Inc or generate 25.11% return on investment over 90 days.

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

Tesla Inc  vs.  Imperial Brands PLC

Tesla Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Tesla unveiled solid returns over the last few months and may actually be approaching a breakup point.

Imperial Brands PLC

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, Imperial Brands unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tesla and Imperial Brands

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

The idea behind Tesla Inc and Imperial Brands PLC 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.