Tesla and Ark Innovation Used to Be Joined at the Hip. Not Anymore.

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Tesla

and the

Ark Innovation
exchange-traded fund were once joined at the hip. That’s no longer the case, perhaps to the Ark ETF’s detriment. 

Case in point: On Monday, Tesla stock (ticker: TSLA) gained 2.5%, while Ark Innovation (ARKK) fell 1.7%, despite the fact that Tesla is its largest position. Nor is that a rare occurrence. Tesla stock has gained more than 1% while ARKK has fallen more than 1% nine times in 2021, all of them since the beginning of July. There were no such days during the first half of the year. 

A quick look at the correlation between Tesla stock and ARKK shows that the relationship between the two has weakened during the second half of 2021. The correlation between the two has been just 0.5 since July 1, down from 0.8 during the first six months of the year. (A correlation of 1 means two assets move in complete lockstep, while a correlation of -1 means they move in complete opposition.) The latter was higher than the 0.6 correlation during the last six months of 2020 and 0.7% during the first six months of that year, a sign that the relationship between the two actually strengthened during the first half of 2021. 

That strong relationship between Tesla and ARKK worked to the ETF’s detriment during the first half of this year. Tesla had a particularly rough time of it, losing 6.8%, which held back Ark Innovation, which rose just 4.9%, trailing the

Nasdaq Composite
‘s 12% ride. The subsequent weakening relationship also worked against ARKK, as Tesla surged 61% during the past six months but was unable to compensate for weakness elsewhere in the ETF, as Ark Innovation has slumped 24% since July 1.

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Correlation isn’t causation, but in this case, there is a fairly obvious reason that the relationship between Tesla and ARKK has been weakening. Tesla made up 10.2% of Ark Innovation’s portfolio on Sept. 30 but just 8.4% by Dec. 28. It appears that ARKK has been selling Tesla into strength, but the stocks it has been buying on the dip—including

Roku

(ROKU),

Zoom Video Communications

(ZM), and

Coinbase

(COIN), among others—have been underperformers recently. 

Of course, selling Tesla into strength and buying other stocks on weakness may turn out to be a good strategy in the long run, but it’s been painful in the short term.

Write to Ben Levisohn at ben.levisohn@barrons.com