Correlation Between NVIDIA and Siemens AG

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

By analyzing existing cross correlation between NVIDIA and Siemens AG ADR, you can compare the effects of market volatilities on NVIDIA and Siemens AG 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 Siemens AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVIDIA and Siemens AG.

Diversification Opportunities for NVIDIA and Siemens AG

-0.55

Correlation Coefficient

NVIDIA  Siemens AG

Excellent diversification

The 3 months correlation between NVIDIA and Siemens is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Siemens AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siemens AG ADR 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 Siemens AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siemens AG ADR has no effect on the direction of NVIDIA i.e., NVIDIA and Siemens AG go up and down completely randomly.

Pair Corralation between NVIDIA and Siemens AG

Assuming the 90 days trading horizon NVIDIA is expected to generate 1.42 times less return on investment than Siemens AG. But when comparing it to its historical volatility, NVIDIA is 2.03 times less risky than Siemens AG. It trades about 0.15 of its potential returns per unit of risk. Siemens AG ADR is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4.22  in Siemens AG ADR on October 10, 2024 and sell it today you would earn a total of  36.78  from holding Siemens AG ADR or generate 871.56% return on investment over 90 days.

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

NVIDIA  vs.  Siemens AG ADR

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. In spite of comparatively unsteady fundamental indicators, NVIDIA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Siemens AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Siemens AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with NVIDIA and Siemens AG

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

The idea behind NVIDIA and Siemens AG ADR 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..