Updated: Jan 13, 2020
Tesla (Symbol: TSLA) is probably a name which most people are very familiar with, especially with the rise of electric cars and autonomous driving in the recent years. When you think of Tesla, you will associate the company with its founder- Elon Musk.
A visionary. Also one with more than his fair share of controversial news in the past few years. While there will be haters who have always attempt to put him down, he has proven himself time and time again. As we speak, TSLA has just his a new record high price of more than US$420.
Let's take a look at its performance over the past year.
Quite a bumpy ride I will say. Price hit the bottom in June and sharply rebound thereafter, hitting a new record high in the recent days.
How does it compare against the major US indices then?
TSLA has been moving quite differently from the major US indices. In fact, you could see the trend line over the period of the past one year for TSLA is almost flat. Here are the r coefficients for the trend lines.
As you can see, TSLA share price pales in comparison compare to the US indices. Unless you can time the market really well, you might be better off buying the US indices ETF instead.
Now, one important factor in trading stocks is also to take note of the various technical indicators. One of the commonly used indicators has been the Simple Moving Average (SMA). Using Simple Moving Average, we are able to better tell how the price trend has been like. For eg, if SMA50 (50-day Simple Moving Average) rises above SMA200 (200-day Simple Moving Average), a golden sign arises which represents a bullish signal. Similarly, if SMA50 drops below SMA200, a death cross arises which represents a bearish sign. The more such crossovers happen, the more volatile the prices are deem to be.
I personally prefer to use SMA20 and SMA50 as there is less "lag" to the actual price chart since it is shorter term in nature, and would like to see how does the crossover chart look like in comparison to the price chart.
You can see that there are four instances where the SMA20 crosses the SMA50. The first occurs in Jan 2019 where the SMA20 drops below SMA50 (bearish sign). One occurs some time in Jul 2019 where the SMA20 rises above SMA50 (bullish sign). The third occurs some time near the end of Aug 2019 where the SMA20 drops below SMA50. The last occurs some time near Oct 2019 where the SMA20 rises above SMA50 again. From then on, SMA20 has been healthily above SMA50.
What happens if you buy TSLA on 24 Dec 2018, sell it when SMA 20 drops below SMA50 and only reinvest again when the SMA20 rises above SMA50 again (rise and repeat)? Would you have made a bigger profit? Let's take a look.
If you were to buy TSLA on 24 Dec 2018 and hold it till now with an initial capital of 1000USD, your 1000USD will have turned into 1458USD.
If you were to adopt the method as described above to rely on these bullish/bearish signal, your 1000USD will have turned into 1974USD instead! In this case, buy and hold is not a better strategy. For stocks which are a bit more volatile like Tesla, it might be good to rely on some technical indicators as shown above.
However, we have only used SMA20 and SMA50 in this case with a very short time horizon of 1 year. Results might potentially be different if you use other SMA values or extend the time horizon.
Sentiment Analysis is another area where data science has been applied to finance to better understand if people sentiments has any effect on stock prices. In this case, I will attempt to try to assign a quantitative value to people sentiments on Tesla to see if there is a direct correlation between people sentiments and TSLA stock price.
In this case, I extracted TSLA sentiment data from Sentdex which pulls data from a variety of sources such as Reuters, Yahoo Finance, Bloomberg, Forbes etc and assigns a value to the general sentiment on a particular topic.
Here is the scale, ranging from a value of -3 (strongly negative) to 6 (strongly positive)
6 - Strongest positive sentiment
5 - Extremely strong, positive, sentiment
4 - Very strong, positive, sentiment
3 - Strong, positive sentiment
2 - Substantially positive sentiment
1 - Barely positive sentiment
0 - Neutral sentiment
-1 - Sentiment trending into negatives
-2 - Weak negative sentiment
-3 - Strongest negative sentiment.
To ensure higher accuracy in the data value, I use the Simple Moving Average of the sentiment value across a period of 5 days instead.
Here is how it looks like (as an example)
I extracted the sentiment value over a duration of 1 year, and cross examine it against TSLA stock price in a scatter plot. Here is how it looks like.
The r coefficient for the trend line is 0.15, which suggests there is a very weak correlation between people sentiments and TSLA share price. As such, Tesla is not a stock which its price is heavily influenced by the people sentiments. In fact, you could even ignore it when timing when to trade TSLA stock.
TSLA is reaching new highs in the recent months. However, it is also a volatile stock. It's also important to note that TSLA is unprofitable at this point of time. In fact, it's earnings per share is -4.77USD based on the latest filing. It's current Price-to-Book (PB) ratio is also 12.8X which suggest TSLA is overvalued as compared to US Auto industry average of 3.7X. At this point of time, I will be inclined to think that TSLA price actions are largely based on euphoria.
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