Correlation Between NVIDIA and Mastercard Incorporated

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

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

Diversification Opportunities for NVIDIA and Mastercard Incorporated

0.61

Correlation Coefficient

NVIDIA  Mastercard Incorporated

Poor diversification

The 3 months correlation between NVIDIA and Mastercard is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Mastercard Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard Incorporated 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 Mastercard Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard Incorporated has no effect on the direction of NVIDIA i.e., NVIDIA and Mastercard Incorporated go up and down completely randomly.

Pair Corralation between NVIDIA and Mastercard Incorporated

Assuming the 90 days trading horizon NVIDIA is expected to generate 2.51 times more return on investment than Mastercard Incorporated. However, NVIDIA is 2.51 times more volatile than Mastercard Incorporated. It trades about 0.15 of its potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.07 per unit of risk. If you would invest  35,968  in NVIDIA on October 12, 2024 and sell it today you would earn a total of  250,727  from holding NVIDIA or generate 697.08% return on investment over 90 days.

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

NVIDIA  vs.  Mastercard Incorporated

NVIDIA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, NVIDIA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Mastercard Incorporated

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Mastercard Incorporated may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NVIDIA and Mastercard Incorporated

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

The idea behind NVIDIA and Mastercard Incorporated 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.

Check out your portfolio center.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.