Correlation Between Amazon and NVIDIA

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

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

Diversification Opportunities for Amazon and NVIDIA

0.62

Correlation Coefficient

Amazon  NVIDIA

Poor diversification

The 3 months correlation between Amazon and NVIDIA is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and NVIDIA go up and down completely randomly.

Pair Corralation between Amazon and NVIDIA

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.72 times more return on investment than NVIDIA. However, Amazon Inc is 1.39 times less risky than NVIDIA. It trades about 0.42 of its potential returns per unit of risk. NVIDIA is currently generating about -0.26 per unit of risk. If you would invest  410,594  in Amazon Inc on September 19, 2024 and sell it today you would earn a total of  56,566  from holding Amazon Inc or generate 13.78% return on investment over 90 days.

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

Amazon Inc  vs.  NVIDIA

Amazon Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Amazon showed solid returns over the last few months and may actually be approaching a breakup point.

NVIDIA

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Amazon and NVIDIA

The main advantage of trading using opposite Amazon and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.