Correlation Between NVIDIA and Philip Morris

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

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

Diversification Opportunities for NVIDIA and Philip Morris

0.49

Correlation Coefficient

NVIDIA  Philip Morris

Very weak diversification

The 3 months correlation between NVIDIA and Philip is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Philip Morris International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philip Morris Intern 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 Philip Morris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philip Morris Intern has no effect on the direction of NVIDIA i.e., NVIDIA and Philip Morris go up and down completely randomly.

Pair Corralation between NVIDIA and Philip Morris

Given the investment horizon of 90 days NVIDIA is expected to generate 2.71 times more return on investment than Philip Morris. However, NVIDIA is 2.71 times more volatile than Philip Morris International. It trades about 0.15 of its potential returns per unit of risk. Philip Morris International is currently generating about 0.06 per unit of risk. If you would invest  1,689  in NVIDIA on October 4, 2024 and sell it today you would earn a total of  11,740  from holding NVIDIA or generate 695.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.0%
Values	Daily Returns

NVIDIA  vs.  Philip Morris International

NVIDIA

Risk-Adjusted Performance

6 of 100

Insignificant

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.

Philip Morris Intern

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Philip Morris may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NVIDIA and Philip Morris

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

The idea behind NVIDIA and Philip Morris International 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.