Correlation Between Tesla and Faraday Future

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

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

Diversification Opportunities for Tesla and Faraday Future

-0.32

Correlation Coefficient

Tesla  Faraday Future

Very good diversification

The 3 months correlation between Tesla and Faraday is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Faraday Future Intelligent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faraday Future Intel 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 Faraday Future. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faraday Future Intel has no effect on the direction of Tesla i.e., Tesla and Faraday Future go up and down completely randomly.

Pair Corralation between Tesla and Faraday Future

Given the investment horizon of 90 days Tesla Inc is expected to under-perform the Faraday Future. But the stock apears to be less risky and, when comparing its historical volatility, Tesla Inc is 3.21 times less risky than Faraday Future. The stock trades about -0.13 of its potential returns per unit of risk. The Faraday Future Intelligent is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6.45  in Faraday Future Intelligent on December 29, 2024 and sell it today you would lose (2.06) from holding Faraday Future Intelligent or give up 31.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	77.05%
Values	Daily Returns

Tesla Inc  vs.  Faraday Future Intelligent

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 abnormal performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Faraday Future Intel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Faraday Future Intelligent has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly abnormal technical and fundamental indicators, Faraday Future may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Tesla and Faraday Future

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

The idea behind Tesla Inc and Faraday Future Intelligent 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.