Correlation Between Tesla and China Merchants

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Can any of the company-specific risk be diversified away by investing in both Tesla and China Merchants 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 China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and China Merchants Bank, you can compare the effects of market volatilities on Tesla and China Merchants 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 China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and China Merchants.

Diversification Opportunities for Tesla and China Merchants

-0.49
  Correlation Coefficient

Very good diversification

The 3 months correlation between Tesla and China is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and China Merchants Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Bank 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 China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Bank has no effect on the direction of Tesla i.e., Tesla and China Merchants go up and down completely randomly.

Pair Corralation between Tesla and China Merchants

Given the investment horizon of 90 days Tesla Inc is expected to generate 1.61 times more return on investment than China Merchants. However, Tesla is 1.61 times more volatile than China Merchants Bank. It trades about 0.05 of its potential returns per unit of risk. China Merchants Bank is currently generating about -0.01 per unit of risk. If you would invest  13,603  in Tesla Inc on July 8, 2022 and sell it today you would earn a total of  10,478  from holding Tesla Inc or generate 77.03% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Tesla Inc  vs.  China Merchants Bank

 Performance (%) 
       Timeline  
Tesla Inc 
Tesla Performance
0 of 100
Over the last 90 days Tesla Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Tesla is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Tesla Price Channel

China Merchants Bank 
China Performance
0 of 100
Over the last 90 days China Merchants Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in November 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

China Price Channel

Tesla and China Merchants Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tesla and China Merchants

The main advantage of trading using opposite Tesla and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, China Merchants 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 China Merchants will offset losses from the drop in China Merchants' long position.
Tesla vs. Amazon Inc
The idea behind Tesla Inc and China Merchants Bank 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.
China Merchants vs. Amazon Inc
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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