Correlation Between Tesla and Applied Materials

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

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

Diversification Opportunities for Tesla and Applied Materials

-0.34

Correlation Coefficient

Tesla  Applied Materials

Very good diversification

The 3 months correlation between Tesla and Applied is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Tesla i.e., Tesla and Applied Materials go up and down completely randomly.

Pair Corralation between Tesla and Applied Materials

Assuming the 90 days trading horizon Tesla Inc is expected to under-perform the Applied Materials. In addition to that, Tesla is 2.03 times more volatile than Applied Materials. It trades about -0.01 of its total potential returns per unit of risk. Applied Materials is currently generating about 0.49 per unit of volatility. If you would invest  333,500  in Applied Materials on October 24, 2024 and sell it today you would earn a total of  71,700  from holding Applied Materials or generate 21.5% return on investment over 90 days.

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

Tesla Inc  vs.  Applied Materials

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 unfluctuating basic indicators, Tesla showed solid returns over the last few months and may actually be approaching a breakup point.

Applied Materials

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Applied Materials showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tesla and Applied Materials

The main advantage of trading using opposite Tesla and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, Applied Materials 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 Applied Materials will offset losses from the drop in Applied Materials' long position.

The idea behind Tesla Inc and Applied Materials 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.