Correlation Between DAX Index and Tesla

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

Diversification Opportunities for DAX Index and Tesla

0.33
  Correlation Coefficient

Weak diversification

The 3 months correlation between DAX and Tesla is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and DAX Index 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 DAX Index are associated (or correlated) with Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of DAX Index i.e., DAX Index and Tesla go up and down completely randomly.
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Pair Corralation between DAX Index and Tesla

Assuming the 90 days trading horizon DAX Index is expected to generate 10.31 times less return on investment than Tesla. But when comparing it to its historical volatility, DAX Index is 4.34 times less risky than Tesla. It trades about 0.07 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  16,162  in Tesla Inc on September 3, 2024 and sell it today you would earn a total of  15,988  from holding Tesla Inc or generate 98.92% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

DAX Index  vs.  Tesla Inc

 Performance 
       Timeline  

DAX Index and Tesla Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and Tesla

The main advantage of trading using opposite DAX Index and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index position performs unexpectedly, Tesla 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 Tesla will offset losses from the drop in Tesla's long position.
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The idea behind DAX Index and Tesla Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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