Correlation Between NVIDIA and Micron Technology

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

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

Diversification Opportunities for NVIDIA and Micron Technology

0.41

Correlation Coefficient

NVIDIA  Micron Technology

Very weak diversification

The 3 months correlation between NVIDIA and Micron is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology 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 Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of NVIDIA i.e., NVIDIA and Micron Technology go up and down completely randomly.

Pair Corralation between NVIDIA and Micron Technology

Assuming the 90 days trading horizon NVIDIA is expected to under-perform the Micron Technology. But the stock apears to be less risky and, when comparing its historical volatility, NVIDIA is 1.21 times less risky than Micron Technology. The stock trades about -0.03 of its potential returns per unit of risk. The Micron Technology is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  201,735  in Micron Technology on December 1, 2024 and sell it today you would lose (11,593) from holding Micron Technology or give up 5.75% of portfolio value over 90 days.

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

NVIDIA  vs.  Micron Technology

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 unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Micron Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Micron Technology 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 Micron Technology

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

The idea behind NVIDIA and Micron Technology 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.