Correlation Between Renesas Electronics and NVIDIA

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Can any of the company-specific risk be diversified away by investing in both Renesas Electronics 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 Renesas Electronics and NVIDIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Renesas Electronics and NVIDIA, you can compare the effects of market volatilities on Renesas Electronics 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 Renesas Electronics with a short position of NVIDIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Renesas Electronics and NVIDIA.

Diversification Opportunities for Renesas Electronics and NVIDIA

-0.7
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Renesas and NVIDIA is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Renesas Electronics 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 Renesas Electronics 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 Renesas Electronics i.e., Renesas Electronics and NVIDIA go up and down completely randomly.

Pair Corralation between Renesas Electronics and NVIDIA

Assuming the 90 days horizon Renesas Electronics is expected to under-perform the NVIDIA. In addition to that, Renesas Electronics is 1.18 times more volatile than NVIDIA. It trades about -0.02 of its total potential returns per unit of risk. NVIDIA is currently generating about 0.13 per unit of volatility. If you would invest  11,680  in NVIDIA on September 5, 2024 and sell it today you would earn a total of  1,522  from holding NVIDIA or generate 13.03% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Renesas Electronics  vs.  NVIDIA

 Performance 
       Timeline  
Renesas Electronics 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Renesas Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Renesas Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
NVIDIA 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NVIDIA reported solid returns over the last few months and may actually be approaching a breakup point.

Renesas Electronics and NVIDIA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Renesas Electronics and NVIDIA

The main advantage of trading using opposite Renesas Electronics and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Renesas Electronics 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 Renesas Electronics 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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