Correlation Between NVIDIA and Tesla

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

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

Diversification Opportunities for NVIDIA and Tesla

0.08

Correlation Coefficient

NVIDIA  Tesla

Significant diversification

The 3 months correlation between NVIDIA and Tesla is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and NVIDIA 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 NVIDIA 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 NVIDIA i.e., NVIDIA and Tesla go up and down completely randomly.

Pair Corralation between NVIDIA and Tesla

Given the investment horizon of 90 days NVIDIA is expected to under-perform the Tesla. But the stock apears to be less risky and, when comparing its historical volatility, NVIDIA is 2.04 times less risky than Tesla. The stock trades about -0.11 of its potential returns per unit of risk. The Tesla Inc is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  33,480  in Tesla Inc on October 5, 2024 and sell it today you would earn a total of  3,790  from holding Tesla Inc or generate 11.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	85.0%
Values	Daily Returns

NVIDIA  vs.  Tesla Inc

NVIDIA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Tesla Inc

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Tesla Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, Tesla unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NVIDIA and Tesla

The main advantage of trading using opposite NVIDIA and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA 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 NVIDIA 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.