Correlation Between Tesla and Hammond Power

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

Diversification Opportunities for Tesla and Hammond Power

-0.33

Correlation Coefficient

Tesla  Hammond Power

Very good diversification

The 3 months correlation between Tesla and Hammond is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc CDR and Hammond Power Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hammond Power Solutions 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 Hammond Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hammond Power Solutions has no effect on the direction of Tesla i.e., Tesla and Hammond Power go up and down completely randomly.

Pair Corralation between Tesla and Hammond Power

Assuming the 90 days trading horizon Tesla Inc CDR is expected to generate 1.52 times more return on investment than Hammond Power. However, Tesla is 1.52 times more volatile than Hammond Power Solutions. It trades about -0.05 of its potential returns per unit of risk. Hammond Power Solutions is currently generating about -0.09 per unit of risk. If you would invest  3,926  in Tesla Inc CDR on October 26, 2024 and sell it today you would lose (183.00) from holding Tesla Inc CDR or give up 4.66% of portfolio value over 90 days.

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

Tesla Inc CDR  vs.  Hammond Power Solutions

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.

Hammond Power Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hammond Power Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Tesla and Hammond Power

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

The idea behind Tesla Inc CDR and Hammond Power Solutions 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.