Correlation Between Tesla and Volkswagen

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

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

Diversification Opportunities for Tesla and Volkswagen

-0.88

Correlation Coefficient

Tesla  Volkswagen

Pay attention - limited upside

The 3 months correlation between Tesla and Volkswagen is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Volkswagen AG VZO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG VZO 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG VZO has no effect on the direction of Tesla i.e., Tesla and Volkswagen go up and down completely randomly.

Pair Corralation between Tesla and Volkswagen

Assuming the 90 days horizon Tesla Inc is expected to generate 3.02 times more return on investment than Volkswagen. However, Tesla is 3.02 times more volatile than Volkswagen AG VZO. It trades about 0.19 of its potential returns per unit of risk. Volkswagen AG VZO is currently generating about -0.16 per unit of risk. If you would invest  19,754  in Tesla Inc on September 4, 2024 and sell it today you would earn a total of  12,821  from holding Tesla Inc or generate 64.9% return on investment over 90 days.

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

Tesla Inc  vs.  Volkswagen AG VZO

Tesla Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Tesla reported solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG VZO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG VZO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Tesla and Volkswagen

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

The idea behind Tesla Inc and Volkswagen AG VZO 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.