Correlation Between Tesla and NVIDIA

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

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

Diversification Opportunities for Tesla and NVIDIA

0.51

Correlation Coefficient

Tesla  NVIDIA

Very weak diversification

The 3 months correlation between Tesla and NVIDIA is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA 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 NVIDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA has no effect on the direction of Tesla i.e., Tesla and NVIDIA go up and down completely randomly.

Pair Corralation between Tesla and NVIDIA

Assuming the 90 days trading horizon Tesla Inc is expected to generate 2.04 times more return on investment than NVIDIA. However, Tesla is 2.04 times more volatile than NVIDIA. It trades about 0.27 of its potential returns per unit of risk. NVIDIA is currently generating about 0.11 per unit of risk. If you would invest  468,393  in Tesla Inc on September 19, 2024 and sell it today you would earn a total of  502,918  from holding Tesla Inc or generate 107.37% return on investment over 90 days.

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

Tesla Inc  vs.  NVIDIA

Tesla Inc

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 21 (%) 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.

NVIDIA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, NVIDIA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tesla and NVIDIA

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

The idea behind Tesla Inc and NVIDIA 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.