Correlation Between ECD Automotive and Tesla

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

By analyzing existing cross correlation between ECD Automotive Design and Tesla Inc, you can compare the effects of market volatilities on ECD Automotive and Tesla 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 ECD Automotive with a short position of Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of ECD Automotive and Tesla.

Diversification Opportunities for ECD Automotive and Tesla

-0.71

Correlation Coefficient

ECD Automotive  Tesla

Pay attention - limited upside

The 3 months correlation between ECD and Tesla is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding ECD Automotive Design and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and ECD Automotive 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 ECD Automotive Design are associated (or correlated) with Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of ECD Automotive i.e., ECD Automotive and Tesla go up and down completely randomly.

Pair Corralation between ECD Automotive and Tesla

Given the investment horizon of 90 days ECD Automotive Design is expected to under-perform the Tesla. In addition to that, ECD Automotive is 1.6 times more volatile than Tesla Inc. It trades about -0.01 of its total potential returns per unit of risk. Tesla Inc is currently generating about 0.07 per unit of volatility. If you would invest  25,208  in Tesla Inc on September 12, 2024 and sell it today you would earn a total of  14,891  from holding Tesla Inc or generate 59.07% return on investment over 90 days.

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

ECD Automotive Design  vs.  Tesla Inc

ECD Automotive Design

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ECD Automotive Design has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, ECD Automotive is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Tesla Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 16 (%) 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.

Pair Trading with ECD Automotive and Tesla

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

The idea behind ECD Automotive Design and Tesla Inc 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .