Correlation Between Applied Digital and NVIDIA

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

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

Diversification Opportunities for Applied Digital and NVIDIA

0.84

Correlation Coefficient

Applied Digital  NVIDIA

Very poor diversification

The 3 months correlation between Applied and NVIDIA is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Applied Digital and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Applied Digital 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 Applied Digital 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 Applied Digital i.e., Applied Digital and NVIDIA go up and down completely randomly.

Pair Corralation between Applied Digital and NVIDIA

Given the investment horizon of 90 days Applied Digital is expected to generate 1.9 times more return on investment than NVIDIA. However, Applied Digital is 1.9 times more volatile than NVIDIA. It trades about -0.03 of its potential returns per unit of risk. NVIDIA is currently generating about -0.07 per unit of risk. If you would invest  797.00  in Applied Digital on December 29, 2024 and sell it today you would lose (225.00) from holding Applied Digital or give up 28.23% of portfolio value over 90 days.

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

Applied Digital  vs.  NVIDIA

Applied Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

NVIDIA

Risk-Adjusted Performance

Very Weak

Over the last 90 days NVIDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Applied Digital and NVIDIA

The main advantage of trading using opposite Applied Digital and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Digital 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 Applied Digital 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.