Correlation Between NVIDIA and QUALCOMM Incorporated

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

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

Diversification Opportunities for NVIDIA and QUALCOMM Incorporated

0.2

Correlation Coefficient

NVIDIA  QUALCOMM Incorporated

Modest diversification

The 3 months correlation between NVIDIA and QUALCOMM is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and QUALCOMM Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QUALCOMM 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 QUALCOMM Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QUALCOMM Incorporated has no effect on the direction of NVIDIA i.e., NVIDIA and QUALCOMM Incorporated go up and down completely randomly.

Pair Corralation between NVIDIA and QUALCOMM Incorporated

Assuming the 90 days trading horizon NVIDIA is expected to generate 1.42 times more return on investment than QUALCOMM Incorporated. However, NVIDIA is 1.42 times more volatile than QUALCOMM Incorporated. It trades about 0.16 of its potential returns per unit of risk. QUALCOMM Incorporated is currently generating about 0.05 per unit of risk. If you would invest  27,680  in NVIDIA on September 24, 2024 and sell it today you would earn a total of  240,688  from holding NVIDIA or generate 869.54% return on investment over 90 days.

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

NVIDIA  vs.  QUALCOMM Incorporated

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.

QUALCOMM Incorporated

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind NVIDIA and QUALCOMM 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..