Correlation Between Nasdaq and NVIDIA
Can any of the company-specific risk be diversified away by investing in both Nasdaq 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 Nasdaq and NVIDIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and NVIDIA, you can compare the effects of market volatilities on Nasdaq 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 Nasdaq with a short position of NVIDIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and NVIDIA.
Diversification Opportunities for Nasdaq and NVIDIA
Poor diversification
The 3 months correlation between Nasdaq and NVIDIA is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and NVIDIA go up and down completely randomly.
Pair Corralation between Nasdaq and NVIDIA
Given the investment horizon of 90 days Nasdaq is expected to generate 2.52 times less return on investment than NVIDIA. But when comparing it to its historical volatility, Nasdaq Inc is 2.36 times less risky than NVIDIA. It trades about 0.17 of its potential returns per unit of risk. NVIDIA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 220,551 in NVIDIA on September 14, 2024 and sell it today you would earn a total of 59,360 from holding NVIDIA or generate 26.91% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 96.83% |
Values | Daily Returns |
Nasdaq Inc vs. NVIDIA
Performance |
Timeline |
Nasdaq Inc |
NVIDIA |
Nasdaq and NVIDIA Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Nasdaq and NVIDIA
The main advantage of trading using opposite Nasdaq and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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 Nasdaq Inc 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.NVIDIA vs. Deutsche Bank Aktiengesellschaft | NVIDIA vs. Grupo Sports World | NVIDIA vs. Grupo Carso SAB | NVIDIA vs. Capital One Financial |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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