Correlation Between NVIDIA and New Era

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

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

Diversification Opportunities for NVIDIA and New Era

-0.66

Correlation Coefficient

NVIDIA  New Era

Excellent diversification

The 3 months correlation between NVIDIA and New is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and New Era Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Era Electronics 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 New Era. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Era Electronics has no effect on the direction of NVIDIA i.e., NVIDIA and New Era go up and down completely randomly.

Pair Corralation between NVIDIA and New Era

Given the investment horizon of 90 days NVIDIA is expected to generate 1.39 times less return on investment than New Era. But when comparing it to its historical volatility, NVIDIA is 1.42 times less risky than New Era. It trades about 0.13 of its potential returns per unit of risk. New Era Electronics is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,644  in New Era Electronics on October 4, 2024 and sell it today you would earn a total of  8,406  from holding New Era Electronics or generate 317.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.19%
Values	Daily Returns

NVIDIA  vs.  New Era Electronics

NVIDIA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 6 (%) 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.

New Era Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Era Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with NVIDIA and New Era

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

The idea behind NVIDIA and New Era Electronics 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.