Correlation Between Tesla and Fox Factory

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

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

Diversification Opportunities for Tesla and Fox Factory

-0.75

Correlation Coefficient

Tesla  Fox Factory

Pay attention - limited upside

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

Pair Corralation between Tesla and Fox Factory

Given the investment horizon of 90 days Tesla Inc is expected to generate 1.72 times more return on investment than Fox Factory. However, Tesla is 1.72 times more volatile than Fox Factory Holding. It trades about 0.19 of its potential returns per unit of risk. Fox Factory Holding is currently generating about -0.11 per unit of risk. If you would invest  21,060  in Tesla Inc on September 1, 2024 and sell it today you would earn a total of  13,456  from holding Tesla Inc or generate 63.89% return on investment over 90 days.

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

Tesla Inc  vs.  Fox Factory Holding

Tesla Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 14 (%) 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.

Fox Factory Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fox Factory Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Tesla and Fox Factory

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

The idea behind Tesla Inc and Fox Factory Holding 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.