Correlation Between Advanced Micro and NVIDIA

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

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

Diversification Opportunities for Advanced Micro and NVIDIA

-0.42

Correlation Coefficient

Advanced Micro  NVIDIA

Very good diversification

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

Pair Corralation between Advanced Micro and NVIDIA

Assuming the 90 days trading horizon Advanced Micro Devices is expected to under-perform the NVIDIA. But the stock apears to be less risky and, when comparing its historical volatility, Advanced Micro Devices is 1.23 times less risky than NVIDIA. The stock trades about -0.06 of its potential returns per unit of risk. The NVIDIA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  11,738  in NVIDIA on September 23, 2024 and sell it today you would earn a total of  1,094  from holding NVIDIA or generate 9.32% return on investment over 90 days.

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

Advanced Micro Devices  vs.  NVIDIA

Advanced Micro Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Micro Devices 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 fundamental 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

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NVIDIA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Micro and NVIDIA

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

The idea behind Advanced Micro Devices and NVIDIA 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.