Correlation Between Freeport McMoRan and NVIDIA Corp

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

By analyzing existing cross correlation between Freeport McMoRan and NVIDIA Corp, you can compare the effects of market volatilities on Freeport McMoRan and NVIDIA Corp 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 Freeport McMoRan with a short position of NVIDIA Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freeport McMoRan and NVIDIA Corp.

Diversification Opportunities for Freeport McMoRan and NVIDIA Corp

-0.42

Correlation Coefficient

Freeport McMoRan  NVIDIA Corp

Very good diversification

The 3 months correlation between Freeport and NVIDIA is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Freeport McMoRan and NVIDIA Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA Corp and Freeport McMoRan 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 Freeport McMoRan are associated (or correlated) with NVIDIA Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA Corp has no effect on the direction of Freeport McMoRan i.e., Freeport McMoRan and NVIDIA Corp go up and down completely randomly.

Pair Corralation between Freeport McMoRan and NVIDIA Corp

Assuming the 90 days trading horizon Freeport McMoRan is expected to under-perform the NVIDIA Corp. But the stock apears to be less risky and, when comparing its historical volatility, Freeport McMoRan is 1.05 times less risky than NVIDIA Corp. The stock trades about -0.2 of its potential returns per unit of risk. The NVIDIA Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  13,648  in NVIDIA Corp on September 27, 2024 and sell it today you would earn a total of  317.00  from holding NVIDIA Corp or generate 2.32% return on investment over 90 days.

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

Freeport McMoRan  vs.  NVIDIA Corp

Freeport McMoRan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

NVIDIA Corp

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Freeport McMoRan and NVIDIA Corp

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

The idea behind Freeport McMoRan and NVIDIA Corp 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.