Correlation Between MACOM Technology and NVIDIA

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

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

Diversification Opportunities for MACOM Technology and NVIDIA

0.81

Correlation Coefficient

MACOM Technology  NVIDIA

Very poor diversification

The 3 months correlation between MACOM and NVIDIA is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding MACOM Technology Solutions and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and MACOM Technology 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 MACOM Technology Solutions 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 MACOM Technology i.e., MACOM Technology and NVIDIA go up and down completely randomly.

Pair Corralation between MACOM Technology and NVIDIA

Given the investment horizon of 90 days MACOM Technology is expected to generate 1.49 times less return on investment than NVIDIA. But when comparing it to its historical volatility, MACOM Technology Solutions is 1.27 times less risky than NVIDIA. It trades about 0.1 of its potential returns per unit of risk. NVIDIA is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,550  in NVIDIA on September 12, 2024 and sell it today you would earn a total of  8,957  from holding NVIDIA or generate 196.86% return on investment over 90 days.

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

MACOM Technology Solutions  vs.  NVIDIA

MACOM Technology Sol

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MACOM Technology Solutions are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, MACOM Technology demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 MACOM Technology and NVIDIA

The main advantage of trading using opposite MACOM Technology and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MACOM Technology 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 MACOM Technology Solutions 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.