Correlation Between Tesla and BYD Co

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

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

Diversification Opportunities for Tesla and BYD Co

-0.47

Correlation Coefficient

Tesla  BYD Co

Very good diversification

The 3 months correlation between Tesla and BYD is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and BYD Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Co 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 are associated (or correlated) with BYD Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Co has no effect on the direction of Tesla i.e., Tesla and BYD Co go up and down completely randomly.

Pair Corralation between Tesla and BYD Co

Given the investment horizon of 90 days Tesla Inc is expected to under-perform the BYD Co. But the stock apears to be less risky and, when comparing its historical volatility, Tesla Inc is 1.02 times less risky than BYD Co. The stock trades about -0.36 of its potential returns per unit of risk. The BYD Co Ltd is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest  7,030  in BYD Co Ltd on November 28, 2024 and sell it today you would earn a total of  2,987  from holding BYD Co Ltd or generate 42.49% 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  vs.  BYD Co Ltd

Tesla Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tesla Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

BYD Co

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, BYD Co showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tesla and BYD Co

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

The idea behind Tesla Inc and BYD Co Ltd 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.