Correlation Between Tesla and Labrador Iron

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

Diversification Opportunities for Tesla and Labrador Iron

-0.5

Correlation Coefficient

Tesla  Labrador Iron

Very good diversification

The 3 months correlation between Tesla and Labrador is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc CDR and Labrador Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Labrador Iron Ore 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 Labrador Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Labrador Iron Ore has no effect on the direction of Tesla i.e., Tesla and Labrador Iron go up and down completely randomly.

Pair Corralation between Tesla and Labrador Iron

Assuming the 90 days trading horizon Tesla Inc CDR is expected to generate 3.63 times more return on investment than Labrador Iron. However, Tesla is 3.63 times more volatile than Labrador Iron Ore. It trades about 0.23 of its potential returns per unit of risk. Labrador Iron Ore is currently generating about 0.05 per unit of risk. If you would invest  2,098  in Tesla Inc CDR on September 12, 2024 and sell it today you would earn a total of  1,772  from holding Tesla Inc CDR or generate 84.46% return on investment over 90 days.

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

Tesla Inc CDR  vs.  Labrador Iron Ore

Tesla Inc CDR

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc CDR are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Tesla exhibited solid returns over the last few months and may actually be approaching a breakup point.

Labrador Iron Ore

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Labrador Iron Ore are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Labrador 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 Labrador Iron

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

The idea behind Tesla Inc CDR and Labrador Iron Ore 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.