Correlation Between Alphabet and NVIDIA

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

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

Diversification Opportunities for Alphabet and NVIDIA

0.67

Correlation Coefficient

Alphabet  NVIDIA

Poor diversification

The 3 months correlation between Alphabet and NVIDIA is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class A and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Alphabet 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 Alphabet Inc Class A 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 Alphabet i.e., Alphabet and NVIDIA go up and down completely randomly.

Pair Corralation between Alphabet and NVIDIA

Assuming the 90 days trading horizon Alphabet Inc Class A is expected to generate 1.07 times more return on investment than NVIDIA. However, Alphabet is 1.07 times more volatile than NVIDIA. It trades about 0.22 of its potential returns per unit of risk. NVIDIA is currently generating about -0.26 per unit of risk. If you would invest  358,549  in Alphabet Inc Class A on September 19, 2024 and sell it today you would earn a total of  36,551  from holding Alphabet Inc Class A or generate 10.19% return on investment over 90 days.

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

Alphabet Inc Class A  vs.  NVIDIA

Alphabet Class A

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class A are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Alphabet displayed 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 Alphabet and NVIDIA

The main advantage of trading using opposite Alphabet and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class A 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.