GOTHENBURG, SWEDEN - 2019/09/14: An American automotive and energy company that specialises in ... [+] electric car manufacturing Tesla logo seen in Gothenburg. (Photo by Karol Serewis/SOPA Images/LightRocket via Getty Images)
Question: With Tesla stock up over 35% in the last month, many Trefis users asked: how likely is it that the rally will continue over the next week, next month or the next quarter?
Answer: Turns out, according to the Trefis Machine Learning Engine, if youre looking for an additional 10% gain at the back of this run, there is a chance of only about 18% that such a gain will materialize in a week while a 10% gain is about 38% likely over the next month. However, there is a roughly 20% chance of a 5% drop over the next month.
What about the possibility of a 10% drop in Teslas stock after such a run? You can test the answer and many other combinations on the Trefis AI Engine for Tesla Stock: Chances for Rebound after a Fall, or, the chance of a Dip after a Rise.
Below, we also discuss a few scenarios and answer common investor questions:
Question 1: Does a rise in Tesla stock become more likely after a drop?
Consider two situations:
Case 1: Tesla stock drops by 5% or more in a week
Case 2: Tesla stock rises by 5% or more in a week
Is the chance of say a 5% rise in Tesla stock over the subsequent month after Case 1 or Case 2 occurs much higher for one versus the other?
Interestingly, for Tesla, the answer is not really. The chances of a 5% rise over the next month (21 trading days) is about 39% for Case 1, i.e. when Teslas stock has just suffered a loss, versus about 43% for Case 2.
Question 2: What about the other way around, does a drop in Tesla stock become more likely after a rise?
Consider, once again, two cases:
Case 1: Tesla stock drops by 5% in a week
Case 2: Tesla stock rises by 5% in a week
The chance of a 5% drop after Case 1 is about 28%, versus about 29% for Case 2. For comparison, for the S&P 500 and for many other stocks, it turns out the chances of a 5% drop after Case 1 or Case 2 has occurred are also quite similar.
Question 3: Does patience pay?
If you buy and hold Tesla stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engines calculations, patience absolutely pays for most stocks!
For after a drop of 5% in Tesla stock over a week (5 trading days), while there is only about 26% chance the stock will gain 5% over the subsequent week, there is more than 53% chance this will happen in 3 months, and 54% chance itll gain 5% over a year (about 250 trading days).
The table below shows the trend for Tesla stock:
Question 4: What about the possibility of a drop after a rise if you wait for a while?
There are two opposing forces at work on Tesla stock here. First, is the general positive bias for Tesla stock (and for most other stocks) that pulls the stock upwards with time. Second, the basic chance of a drop, as a chance of any event happening, should simply increase with the passage of time.
After seeing a rise of 5% over 5 days, the chances of a 5% drop in Tesla stock are about 29% over the subsequent month of waiting (21 trading days) and this increases to 32% when the waiting period is a quarter (63 trading days).
The table below shows the trend for Tesla stock:
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