Correlation Between Tesla and Westport Fuel

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

Diversification Opportunities for Tesla and Westport Fuel

-0.39
  Correlation Coefficient

Very good diversification

The 3 months correlation between Tesla and Westport is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc CDR and Westport Fuel Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westport Fuel Systems 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 Westport Fuel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westport Fuel Systems has no effect on the direction of Tesla i.e., Tesla and Westport Fuel go up and down completely randomly.

Pair Corralation between Tesla and Westport Fuel

Assuming the 90 days trading horizon Tesla Inc CDR is expected to generate 1.2 times more return on investment than Westport Fuel. However, Tesla is 1.2 times more volatile than Westport Fuel Systems. It trades about 0.07 of its potential returns per unit of risk. Westport Fuel Systems is currently generating about -0.03 per unit of risk. If you would invest  2,163  in Tesla Inc CDR on October 6, 2024 and sell it today you would earn a total of  1,574  from holding Tesla Inc CDR or generate 72.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Tesla Inc CDR  vs.  Westport Fuel Systems

 Performance 
       Timeline  
Tesla Inc CDR 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
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 unfluctuating technical and fundamental indicators, Tesla exhibited solid returns over the last few months and may actually be approaching a breakup point.
Westport Fuel Systems 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Westport Fuel Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Westport Fuel is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Tesla and Westport Fuel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tesla and Westport Fuel

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

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