Correlation Between Tesla and Champion Iron

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

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

Diversification Opportunities for Tesla and Champion Iron

-0.34

Correlation Coefficient

Tesla  Champion Iron

Very good diversification

The 3 months correlation between Tesla and Champion is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc CDR and Champion Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Iron 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 CDR are associated (or correlated) with Champion Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Iron has no effect on the direction of Tesla i.e., Tesla and Champion Iron go up and down completely randomly.

Pair Corralation between Tesla and Champion Iron

Assuming the 90 days trading horizon Tesla Inc CDR is expected to generate 1.56 times more return on investment than Champion Iron. However, Tesla is 1.56 times more volatile than Champion Iron. It trades about 0.18 of its potential returns per unit of risk. Champion Iron is currently generating about 0.03 per unit of risk. If you would invest  2,011  in Tesla Inc CDR on September 4, 2024 and sell it today you would earn a total of  1,193  from holding Tesla Inc CDR or generate 59.32% return on investment over 90 days.

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

Tesla Inc CDR  vs.  Champion Iron

Tesla Inc CDR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc CDR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, Tesla exhibited solid returns over the last few months and may actually be approaching a breakup point.

Champion Iron

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Champion Iron are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Champion Iron is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Tesla and Champion Iron

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

The idea behind Tesla Inc CDR and Champion Iron 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.