Correlation Between NVIDIA and Berkshire Hathaway

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

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

Diversification Opportunities for NVIDIA and Berkshire Hathaway

0.77

Correlation Coefficient

NVIDIA  Berkshire Hathaway

Poor diversification

The 3 months correlation between NVIDIA and Berkshire is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of NVIDIA i.e., NVIDIA and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between NVIDIA and Berkshire Hathaway

Assuming the 90 days trading horizon NVIDIA is expected to under-perform the Berkshire Hathaway. In addition to that, NVIDIA is 2.39 times more volatile than Berkshire Hathaway. It trades about -0.26 of its total potential returns per unit of risk. Berkshire Hathaway is currently generating about -0.13 per unit of volatility. If you would invest  943,500  in Berkshire Hathaway on September 19, 2024 and sell it today you would lose (23,219) from holding Berkshire Hathaway or give up 2.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

NVIDIA  vs.  Berkshire Hathaway

NVIDIA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 8 (%) 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.

Berkshire Hathaway

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NVIDIA and Berkshire Hathaway

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

The idea behind NVIDIA and Berkshire Hathaway 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.