Correlation Between Tesla and NVIDIA
Can any of the company-specific risk be diversified away by investing in both Tesla and NVIDIA 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 NVIDIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and NVIDIA, you can compare the effects of market volatilities on Tesla and NVIDIA 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 NVIDIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and NVIDIA.
Diversification Opportunities for Tesla and NVIDIA
Poor diversification
The 3 months correlation between Tesla and NVIDIA is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA 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 NVIDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA has no effect on the direction of Tesla i.e., Tesla and NVIDIA go up and down completely randomly.
Pair Corralation between Tesla and NVIDIA
Assuming the 90 days trading horizon Tesla Inc is expected to generate 1.15 times more return on investment than NVIDIA. However, Tesla is 1.15 times more volatile than NVIDIA. It trades about 0.61 of its potential returns per unit of risk. NVIDIA is currently generating about -0.21 per unit of risk. If you would invest 636,228 in Tesla Inc on September 15, 2024 and sell it today you would earn a total of 235,879 from holding Tesla Inc or generate 37.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tesla Inc vs. NVIDIA
Performance |
| Timeline |
| Tesla Inc |
| NVIDIA |
Tesla and NVIDIA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tesla and NVIDIA
The main advantage of trading using opposite Tesla and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, NVIDIA 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 NVIDIA will offset losses from the drop in NVIDIA's long position.| Tesla vs. FibraHotel | Tesla vs. Micron Technology | Tesla vs. United Airlines Holdings | Tesla vs. Hoteles City Express |
| NVIDIA vs. Grupo Carso SAB | NVIDIA vs. Cognizant Technology Solutions | NVIDIA vs. New Oriental Education | NVIDIA vs. McEwen Mining |
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 the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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