Correlation Between NVIDIA and Semiconductor Manufacturing

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

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

Diversification Opportunities for NVIDIA and Semiconductor Manufacturing

0.29

Correlation Coefficient

NVIDIA  Semiconductor Manufacturing

Modest diversification

The 3 months correlation between NVIDIA and Semiconductor is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Semiconductor Manufacturing In in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semiconductor Manufacturing and NVIDIA 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 NVIDIA are associated (or correlated) with Semiconductor Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semiconductor Manufacturing has no effect on the direction of NVIDIA i.e., NVIDIA and Semiconductor Manufacturing go up and down completely randomly.

Pair Corralation between NVIDIA and Semiconductor Manufacturing

Assuming the 90 days horizon NVIDIA is expected to generate 3.96 times more return on investment than Semiconductor Manufacturing. However, NVIDIA is 3.96 times more volatile than Semiconductor Manufacturing International. It trades about 0.07 of its potential returns per unit of risk. Semiconductor Manufacturing International is currently generating about 0.11 per unit of risk. If you would invest  12,961  in NVIDIA on October 24, 2024 and sell it today you would earn a total of  1,161  from holding NVIDIA or generate 8.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

NVIDIA  vs.  Semiconductor Manufacturing In

NVIDIA

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NVIDIA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Semiconductor Manufacturing

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Semiconductor Manufacturing International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Semiconductor Manufacturing is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NVIDIA and Semiconductor Manufacturing

The main advantage of trading using opposite NVIDIA and Semiconductor Manufacturing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA position performs unexpectedly, Semiconductor Manufacturing 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 Semiconductor Manufacturing will offset losses from the drop in Semiconductor Manufacturing's long position.

The idea behind NVIDIA and Semiconductor Manufacturing International 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.