Correlation Between NVIDIA and Oriental Precision

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

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

Diversification Opportunities for NVIDIA and Oriental Precision

0.04

Correlation Coefficient

NVIDIA  Oriental Precision

Significant diversification

The 3 months correlation between NVIDIA and Oriental is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Oriental Precision Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Precision 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 Oriental Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Precision has no effect on the direction of NVIDIA i.e., NVIDIA and Oriental Precision go up and down completely randomly.

Pair Corralation between NVIDIA and Oriental Precision

Given the investment horizon of 90 days NVIDIA is expected to generate 2.68 times less return on investment than Oriental Precision. But when comparing it to its historical volatility, NVIDIA is 1.14 times less risky than Oriental Precision. It trades about 0.03 of its potential returns per unit of risk. Oriental Precision Engineering is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  397,817  in Oriental Precision Engineering on October 4, 2024 and sell it today you would earn a total of  123,183  from holding Oriental Precision Engineering or generate 30.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

NVIDIA  vs.  Oriental Precision Engineering

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. Despite somewhat unsteady fundamental indicators, NVIDIA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Oriental Precision

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Oriental Precision Engineering are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oriental Precision sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NVIDIA and Oriental Precision

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

The idea behind NVIDIA and Oriental Precision Engineering 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.