Correlation Between NVIDIA and Alfa SAB

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

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

Diversification Opportunities for NVIDIA and Alfa SAB

0.7

Correlation Coefficient

NVIDIA  Alfa SAB

Poor diversification

The 3 months correlation between NVIDIA and Alfa is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Alfa SAB de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa SAB de 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 Alfa SAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa SAB de has no effect on the direction of NVIDIA i.e., NVIDIA and Alfa SAB go up and down completely randomly.

Pair Corralation between NVIDIA and Alfa SAB

Assuming the 90 days trading horizon NVIDIA is expected to generate 1.36 times less return on investment than Alfa SAB. But when comparing it to its historical volatility, NVIDIA is 1.33 times less risky than Alfa SAB. It trades about 0.2 of its potential returns per unit of risk. Alfa SAB de is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,095  in Alfa SAB de on September 4, 2024 and sell it today you would earn a total of  515.00  from holding Alfa SAB de or generate 47.03% return on investment over 90 days.

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

NVIDIA  vs.  Alfa SAB de

NVIDIA

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, NVIDIA showed solid returns over the last few months and may actually be approaching a breakup point.

Alfa SAB de

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa SAB de are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Alfa SAB displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NVIDIA and Alfa SAB

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

The idea behind NVIDIA and Alfa SAB de 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.