Correlation Between Tesla and Principal Solar

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

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

Diversification Opportunities for Tesla and Principal Solar

-0.78

Correlation Coefficient

Tesla  Principal Solar

Pay attention - limited upside

The 3 months correlation between Tesla and Principal is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Principal Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Solar 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 Principal Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Solar has no effect on the direction of Tesla i.e., Tesla and Principal Solar go up and down completely randomly.

Pair Corralation between Tesla and Principal Solar

Given the investment horizon of 90 days Tesla is expected to generate 4.51 times less return on investment than Principal Solar. But when comparing it to its historical volatility, Tesla Inc is 7.45 times less risky than Principal Solar. It trades about 0.19 of its potential returns per unit of risk. Principal Solar is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.05  in Principal Solar on October 7, 2024 and sell it today you would lose (0.03) from holding Principal Solar or give up 60.0% 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.  Principal Solar

Tesla Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 15 (%) 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.

Principal Solar

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Solar are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Principal Solar showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tesla and Principal Solar

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

The idea behind Tesla Inc and Principal Solar 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.