Correlation Between Tesla and Armstrong Flooring

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

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

Diversification Opportunities for Tesla and Armstrong Flooring

-0.17

Correlation Coefficient

Tesla  Armstrong Flooring

Good diversification

The 3 months correlation between Tesla and Armstrong is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Armstrong Flooring in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armstrong Flooring 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 Armstrong Flooring. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armstrong Flooring has no effect on the direction of Tesla i.e., Tesla and Armstrong Flooring go up and down completely randomly.

Pair Corralation between Tesla and Armstrong Flooring

Given the investment horizon of 90 days Tesla Inc is expected to under-perform the Armstrong Flooring. But the stock apears to be less risky and, when comparing its historical volatility, Tesla Inc is 20.68 times less risky than Armstrong Flooring. The stock trades about -0.01 of its potential returns per unit of risk. The Armstrong Flooring is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Armstrong Flooring on January 30, 2024 and sell it today you would earn a total of  20.00  from holding Armstrong Flooring or generate 133.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	2.02%
Values	Daily Returns

Tesla Inc  vs.  Armstrong Flooring

Tesla Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tesla Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Armstrong Flooring

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Armstrong Flooring has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Armstrong Flooring is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Tesla and Armstrong Flooring

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

The idea behind Tesla Inc and Armstrong Flooring 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.