Correlation Between Volkswagen and Tesla

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

Diversification Opportunities for Volkswagen and Tesla

-0.19
  Correlation Coefficient

Good diversification

The 3 months correlation between Volkswagen and Tesla is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and Volkswagen 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 Volkswagen AG VZO 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 Volkswagen i.e., Volkswagen and Tesla go up and down completely randomly.

Pair Corralation between Volkswagen and Tesla

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to generate 0.68 times more return on investment than Tesla. However, Volkswagen AG VZO is 1.48 times less risky than Tesla. It trades about 0.14 of its potential returns per unit of risk. Tesla Inc is currently generating about -0.46 per unit of risk. If you would invest  9,782  in Volkswagen AG VZO on December 1, 2024 and sell it today you would earn a total of  628.00  from holding Volkswagen AG VZO or generate 6.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Volkswagen AG VZO  vs.  Tesla Inc

 Performance 
       Timeline  
Volkswagen AG VZO 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG VZO are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Volkswagen exhibited solid returns over the last few months and may actually be approaching a breakup point.
Tesla Inc 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Tesla Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Volkswagen and Tesla Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Volkswagen and Tesla

The main advantage of trading using opposite Volkswagen and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen 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 Volkswagen AG VZO 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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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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