Correlation Between GM and NVIDIA

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

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

Diversification Opportunities for GM and NVIDIA

0.4

Correlation Coefficient

GM  NVIDIA

Very weak diversification

The 3 months correlation between GM and NVIDIA is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and GM 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 General Motors 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 GM i.e., GM and NVIDIA go up and down completely randomly.

Pair Corralation between GM and NVIDIA

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the NVIDIA. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.57 times less risky than NVIDIA. The stock trades about -0.08 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  284,564  in NVIDIA on December 3, 2024 and sell it today you would lose (30,310) from holding NVIDIA or give up 10.65% of portfolio value over 90 days.

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

General Motors  vs.  NVIDIA

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

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. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with GM and NVIDIA

The main advantage of trading using opposite GM and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.