Correlation Between Globalfoundries and NVIDIA

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

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

Diversification Opportunities for Globalfoundries and NVIDIA

0.38

Correlation Coefficient

Globalfoundries  NVIDIA

Weak diversification

The 3 months correlation between Globalfoundries and NVIDIA is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Globalfoundries and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Globalfoundries 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 Globalfoundries 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 Globalfoundries i.e., Globalfoundries and NVIDIA go up and down completely randomly.

Pair Corralation between Globalfoundries and NVIDIA

Considering the 90-day investment horizon Globalfoundries is expected to under-perform the NVIDIA. But the stock apears to be less risky and, when comparing its historical volatility, Globalfoundries is 1.22 times less risky than NVIDIA. The stock trades about -0.03 of its potential returns per unit of risk. The NVIDIA is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,481  in NVIDIA on October 7, 2024 and sell it today you would earn a total of  8,966  from holding NVIDIA or generate 163.58% return on investment over 90 days.

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

Globalfoundries  vs.  NVIDIA

Globalfoundries

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Globalfoundries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Globalfoundries may actually be approaching a critical reversion point that can send shares even higher in February 2025.

NVIDIA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Globalfoundries and NVIDIA

The main advantage of trading using opposite Globalfoundries and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Globalfoundries 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 Globalfoundries 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.