Correlation Between Tesla and Verizon Communications

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

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

Diversification Opportunities for Tesla and Verizon Communications

0.26

Correlation Coefficient

Tesla  Verizon Communications

Modest diversification

The 3 months correlation between Tesla and Verizon is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Tesla i.e., Tesla and Verizon Communications go up and down completely randomly.

Pair Corralation between Tesla and Verizon Communications

Assuming the 90 days trading horizon Tesla Inc is expected to generate 2.24 times more return on investment than Verizon Communications. However, Tesla is 2.24 times more volatile than Verizon Communications. It trades about 0.28 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.01 per unit of risk. If you would invest  439,507  in Tesla Inc on September 18, 2024 and sell it today you would earn a total of  490,174  from holding Tesla Inc or generate 111.53% return on investment over 90 days.

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

Tesla Inc  vs.  Verizon Communications

Tesla Inc

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Tesla showed solid returns over the last few months and may actually be approaching a breakup point.

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Verizon Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tesla and Verizon Communications

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

The idea behind Tesla Inc and Verizon Communications 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.