Correlation Between Tesla and Home Depot

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

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

Diversification Opportunities for Tesla and Home Depot

0.6

Correlation Coefficient

Tesla  Home Depot

Poor diversification

The 3 months correlation between Tesla and Home is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Tesla i.e., Tesla and Home Depot go up and down completely randomly.

Pair Corralation between Tesla and Home Depot

Assuming the 90 days trading horizon Tesla Inc is expected to under-perform the Home Depot. In addition to that, Tesla is 2.47 times more volatile than The Home Depot. It trades about -0.21 of its total potential returns per unit of risk. The Home Depot is currently generating about -0.08 per unit of volatility. If you would invest  776,945  in The Home Depot on December 20, 2024 and sell it today you would lose (67,893) from holding The Home Depot or give up 8.74% of portfolio value over 90 days.

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

Tesla Inc  vs.  The Home Depot

Tesla Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tesla Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Home Depot

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Tesla and Home Depot

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

The idea behind Tesla Inc and The Home Depot 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.