Correlation Between Tesla and PPG Industries

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

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

Diversification Opportunities for Tesla and PPG Industries

0.7

Correlation Coefficient

Tesla  PPG Industries

Poor diversification

The 3 months correlation between Tesla and PPG is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and PPG Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPG Industries 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 PPG Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPG Industries has no effect on the direction of Tesla i.e., Tesla and PPG Industries go up and down completely randomly.

Pair Corralation between Tesla and PPG Industries

Assuming the 90 days trading horizon Tesla Inc is expected to generate 4.91 times more return on investment than PPG Industries. However, Tesla is 4.91 times more volatile than PPG Industries. It trades about 0.16 of its potential returns per unit of risk. PPG Industries is currently generating about 0.05 per unit of risk. If you would invest  270,652  in Tesla Inc on October 12, 2024 and sell it today you would earn a total of  536,348  from holding Tesla Inc or generate 198.17% return on investment over 90 days.

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

Tesla Inc  vs.  PPG Industries

Tesla Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 18 (%) 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.

PPG Industries

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PPG Industries are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, PPG Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tesla and PPG Industries

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

The idea behind Tesla Inc and PPG Industries 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.