Correlation Between Tesla and European Residential

Can any of the company-specific risk be diversified away by investing in both Tesla and European Residential 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 European Residential 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 European Residential Real, you can compare the effects of market volatilities on Tesla and European Residential 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 European Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and European Residential.

Diversification Opportunities for Tesla and European Residential

0.45

Correlation Coefficient

Tesla  European Residential

Very weak diversification

The 3 months correlation between Tesla and European is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc CDR and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential Real 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 European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of Tesla i.e., Tesla and European Residential go up and down completely randomly.

Pair Corralation between Tesla and European Residential

Assuming the 90 days trading horizon Tesla Inc CDR is expected to generate 0.51 times more return on investment than European Residential. However, Tesla Inc CDR is 1.95 times less risky than European Residential. It trades about 0.08 of its potential returns per unit of risk. European Residential Real is currently generating about -0.17 per unit of risk. If you would invest  3,544  in Tesla Inc CDR on October 7, 2024 and sell it today you would earn a total of  193.00  from holding Tesla Inc CDR or generate 5.45% return on investment over 90 days.

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

Tesla Inc CDR  vs.  European Residential Real

Tesla Inc CDR

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc CDR are ranked lower than 15 (%) 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.

European Residential Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Residential Real 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 technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tesla and European Residential

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

The idea behind Tesla Inc CDR and European Residential Real 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.