Correlation Between NVIDIA and Advanced Lithium

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

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

Diversification Opportunities for NVIDIA and Advanced Lithium

0.4

Correlation Coefficient

NVIDIA  Advanced Lithium

Very weak diversification

The 3 months correlation between NVIDIA and Advanced is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Advanced Lithium Electrochemis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Lithium Ele 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 Advanced Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Lithium Ele has no effect on the direction of NVIDIA i.e., NVIDIA and Advanced Lithium go up and down completely randomly.

Pair Corralation between NVIDIA and Advanced Lithium

Given the investment horizon of 90 days NVIDIA is expected to generate 8.57 times less return on investment than Advanced Lithium. But when comparing it to its historical volatility, NVIDIA is 20.91 times less risky than Advanced Lithium. It trades about 0.14 of its potential returns per unit of risk. Advanced Lithium Electrochemistry is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,447  in Advanced Lithium Electrochemistry on October 5, 2024 and sell it today you would lose (4,187) from holding Advanced Lithium Electrochemistry or give up 49.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.11%
Values	Daily Returns

NVIDIA  vs.  Advanced Lithium Electrochemis

NVIDIA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 5 (%) 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.

Advanced Lithium Ele

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Lithium Electrochemistry are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advanced Lithium showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NVIDIA and Advanced Lithium

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

The idea behind NVIDIA and Advanced Lithium Electrochemistry 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..