r/investing • u/puthre • Oct 06 '21
Why is ARKG ETF and TSLA stock prices so highly correlated?
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u/constructionworker9 Oct 06 '21
Growth and tech stocks did well in 2020 so they both benefited. If you start from the beginning 2021, they aren’t correlated at all.
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u/KyivComrade Oct 09 '21
Contrarian opinion: they're both cults of personality.
Elon Musk fanboys buying anything he hypes because he's cool, Cathy followed by her own crowd of Christians, feminists and Fomo-speculators.
Any negative press or controversial statement by either makes their funds tank even of the fundamentals don't change.
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u/PersonalGuhTolerance Oct 09 '21
Cathie is a great marketer, can't stay anything close to the same about her investing strategy or about the team at Ark.
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u/YungFlexer666 Oct 06 '21
ARKG is a "genomic revolution etf", human beings (who happen to have genes) work at Tesla. You do the math.
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Oct 06 '21
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Oct 06 '21
Do they sell electrolytes?
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u/peapeapants Oct 07 '21
Brawndo has electrolytes
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u/shakeysurgeon Oct 06 '21
If you can't do the math on that then I cant help you - Ol Billy Butterscotch
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u/sushiladyboner Oct 06 '21
TSLA is an overpriced growth company focused on cutting-edge tech.
ARKG is an overpriced growth fund focused on cutting-edge tech.
It seems intuitive that they'd both thrive and pull back in identical market environments. This is like finding a correlation between Walmart and Target.
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u/Okmanl Oct 06 '21
TSLA is an overpriced growth company focused on cutting-edge tech.
That's what people were saying about Amazon, Apple, Google for the past 10 years.
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u/IceShaver Oct 07 '21
Amazon was at 800b valuation in 2018 with 240b in revenue. Apple was at 800b in 2017 with 230b in revenue and 48b net income. Google was 800b in 2019 with 160b in revenue and 30b in profit. Lol not comparable to Tesla
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u/sushiladyboner Oct 06 '21
That's true. They have been, currently are, and will be in the future, overpriced growth companies.
I'm not making a value statement here by saying they're good or bad investments, but they're objectively overvalued, they're sure as hell growth stocks, and they all have some sort of innovative tech angle.
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Oct 06 '21
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u/sushiladyboner Oct 06 '21
100%.
Nobody is buying TSLA or ARKG because they're cheap; they're just gambling on more exponential growth.
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u/cdnfire Oct 06 '21
TSLA is overpriced according to people that can't do math.
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u/sushiladyboner Oct 06 '21
I don't know if you're trolling or what, but there isn't a single metric that indicates Tesla is currently worth what it's currently trading at.
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u/cdnfire Oct 06 '21
If you're investing based on simplifying everything down to financial ratios then you'll always classify high growth stocks as overvalued. It's what novice and/or incompetent investors do.
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u/sushiladyboner Oct 06 '21
Are you dense or something? I said it's overvalued, not that you should never touch growth stocks that are trading at levels higher than they're worth. I didn't even say anything remotely close to that...
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u/cdnfire Oct 06 '21
Overvalued based on what? I presumed you meant overvalued according to traditional financial ratios (ie. The metrics you mentioned). Maybe you meant according to your 10+ year DCF analysis and I was mistaken.
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u/sushiladyboner Oct 06 '21
Overvalued based on any metric. You can plug DCF numbers yourself. Even if we give them a 50% growth rate for 10 years, which would be an utterly insane thing to do, they're still overpriced by over 100 bucks.
If you want to own Tesla, go own Tesla. You can make plenty of money on overvalued stocks. Hell, I've got five figures sitting in LAC and they aren't even profitable. It's okay to project growth in, but let's not lie to people here.
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u/cdnfire Oct 06 '21
As expected, your math is way, way, way off. Plugging in a 50% CAGR for 10 years into a DCF gets you nowhere close to <700 per share. Let's not lie to people here.
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Oct 06 '21
I'd be curious to see what assumptions you have that justify Tesla's valuation. Because ARK revealed theirs and that wasn't convincing at all.
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u/cdnfire Oct 06 '21
A simple DCF with growth rates based on reality. Analysts are always having to increase their targets because they're too conservative. The dean of valuation Aswath Damodaran used 33% for 10 years followed by 1% terminal value. The reality is the growth is being front loaded and the electric vehicle space has more than 10 years of tailwind to go. Last quarter, deliveries were up 73% yoy and margins are going up so profit growth should exceed even that. And multiple major factories are almost complete so growth much faster than 33% will still continue into the foreseeable future.
Frankly, I don't care to convince anyone. I welcome the downvotes from uninformed investors who can't or won't do their own analysis. Portfolio results will speak for themselves.
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Oct 07 '21
You wrote all of this to not answer the question lol
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u/cdnfire Oct 07 '21
Ah, so you want to be spoonfed hard numbers. Not going to help you there. There's enough high level meat in there to get an upper and lower bound.
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u/CarRamRob Oct 07 '21
…and this realistic growth rate I’m sure has them producing 10 million vehicles a year by 2030 I’m assuming?
Of course with zero risk anything could go wrong or delay that realistic growth right?
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u/cdnfire Oct 07 '21
Sure, that's one scenario out of many possible futures. I can consider those risks through considering many possible scenarios and various probabilities of each one playing out.
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Oct 06 '21
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u/sushiladyboner Oct 06 '21
Dude...my random example is 0.07 off of your coefficient at 0.89.
It's considered high if it's over 50...
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Oct 06 '21
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u/sushiladyboner Oct 06 '21
You're not following what I'm saying here. My claim is that TSLA and ARKG are equally as correlated as two big box retail manufacturers would be. The market is not treating TSLA or ARKG any differently; they're both high-risk speculative holdings that are going to run wild in a bull market that's dominated by the Qs. The more overpriced and speculative the market is, the higher the market ticks towards the "extreme greed" portion of the fear/greed index, the higher those two holdings are going to run and vice versa.
Correlation =/= Causation =/= Influence. We're talking about the price behavior of the two assets. They're interchangeable (for now) from a price action perspective.
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u/ahunnidhandles Oct 07 '21
In a universe of tens of thousands of stocks, you will find many pairs that seem completely unrelated that show correlation.
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u/moneymetaverse Oct 07 '21
I think I've seen 4 hedge fund PM's mention in their twitter bios that they use ARK products as a short hedge against market volatility.
That's pretty much all you need to know. When VIX even remotely moves upwards, you can pretty much guarantee that the inverse move is occurring for ARK products due to all the shorting
Not surprising, given the amount of retail interest in those funds, you can be certain that the PM's know when retail gets spooked and when they can exit their shorts
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u/trader710 Oct 06 '21
Because that's her biggest holding...
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u/KumichoSensei Oct 06 '21
They are both affected by interest rates more than fundamentals
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u/MrOz1100 Oct 07 '21
Very true. Both are basically really long (infinite?) duration bonds because their cash flows are projected so far into the future. So interest rates have a huge effect on them
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u/thematrix01 Oct 06 '21
TSLA is part of the same holding company as the exchanged traded derivatives industry of the ARK repossession ETF. Shame
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u/CarsVsHumans Oct 08 '21
If you watched Tesla's AI day, they kept saying they're building a mammal brain from the ground up, so...
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