Correlation Between Tesla and City Developments

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

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

Diversification Opportunities for Tesla and City Developments

-0.75

Correlation Coefficient

Tesla  City Developments

Pay attention - limited upside

The 3 months correlation between Tesla and City is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and City Developments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Developments 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 City Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Developments has no effect on the direction of Tesla i.e., Tesla and City Developments go up and down completely randomly.

Pair Corralation between Tesla and City Developments

Given the investment horizon of 90 days Tesla Inc is expected to generate 2.59 times more return on investment than City Developments. However, Tesla is 2.59 times more volatile than City Developments. It trades about 0.01 of its potential returns per unit of risk. City Developments is currently generating about -0.1 per unit of risk. If you would invest  40,099  in Tesla Inc on October 11, 2024 and sell it today you would lose (605.00) from holding Tesla Inc or give up 1.51% of portfolio value over 90 days.

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

Tesla Inc  vs.  City Developments

Tesla Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal essential indicators, Tesla sustained solid returns over the last few months and may actually be approaching a breakup point.

City Developments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Developments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, City Developments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tesla and City Developments

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

The idea behind Tesla Inc and City Developments 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.