Correlation Between NVIDIA and Cullen/Frost Bankers

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

By analyzing existing cross correlation between NVIDIA and CullenFrost Bankers, you can compare the effects of market volatilities on NVIDIA and Cullen/Frost Bankers 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 Cullen/Frost Bankers. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVIDIA and Cullen/Frost Bankers.

Diversification Opportunities for NVIDIA and Cullen/Frost Bankers

0.59

Correlation Coefficient

NVIDIA  Cullen/Frost Bankers

Very weak diversification

The 3 months correlation between NVIDIA and Cullen/Frost is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and CullenFrost Bankers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cullen/Frost Bankers 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 Cullen/Frost Bankers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cullen/Frost Bankers has no effect on the direction of NVIDIA i.e., NVIDIA and Cullen/Frost Bankers go up and down completely randomly.

Pair Corralation between NVIDIA and Cullen/Frost Bankers

Assuming the 90 days trading horizon NVIDIA is expected to generate 2.46 times more return on investment than Cullen/Frost Bankers. However, NVIDIA is 2.46 times more volatile than CullenFrost Bankers. It trades about -0.04 of its potential returns per unit of risk. CullenFrost Bankers is currently generating about -0.13 per unit of risk. If you would invest  13,097  in NVIDIA on December 25, 2024 and sell it today you would lose (1,837) from holding NVIDIA or give up 14.03% of portfolio value over 90 days.

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

NVIDIA  vs.  CullenFrost Bankers

NVIDIA

Risk-Adjusted Performance

Very Weak

Over the last 90 days NVIDIA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Cullen/Frost Bankers

Risk-Adjusted Performance

Very Weak

Over the last 90 days CullenFrost Bankers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NVIDIA and Cullen/Frost Bankers

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

The idea behind NVIDIA and CullenFrost Bankers 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.