Correlation Between Applied Materials and Tesla

Can any of the company-specific risk be diversified away by investing in both Applied Materials 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 Applied Materials and Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Applied Materials and Tesla Inc, you can compare the effects of market volatilities on Applied Materials 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 Applied Materials with a short position of Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Tesla.

Diversification Opportunities for Applied Materials and Tesla

-0.69

Correlation Coefficient

Applied Materials  Tesla

Excellent diversification

The 3 months correlation between Applied and Tesla is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and Tesla go up and down completely randomly.

Pair Corralation between Applied Materials and Tesla

Assuming the 90 days trading horizon Applied Materials is expected to under-perform the Tesla. But the stock apears to be less risky and, when comparing its historical volatility, Applied Materials is 1.67 times less risky than Tesla. The stock trades about -0.19 of its potential returns per unit of risk. The Tesla Inc is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  693,332  in Tesla Inc on September 22, 2024 and sell it today you would earn a total of  161,301  from holding Tesla Inc or generate 23.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Applied Materials  vs.  Tesla Inc

Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Tesla Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Tesla showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and Tesla

The main advantage of trading using opposite Applied Materials and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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.

The idea behind Applied Materials 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.