Correlation Between NVIDIA and Shanghai Putailai

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

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

Diversification Opportunities for NVIDIA and Shanghai Putailai

0.63

Correlation Coefficient

NVIDIA  Shanghai Putailai

Poor diversification

The 3 months correlation between NVIDIA and Shanghai is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Shanghai Putailai New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Putailai New 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 Shanghai Putailai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Putailai New has no effect on the direction of NVIDIA i.e., NVIDIA and Shanghai Putailai go up and down completely randomly.

Pair Corralation between NVIDIA and Shanghai Putailai

Given the investment horizon of 90 days NVIDIA is expected to generate 1.15 times more return on investment than Shanghai Putailai. However, NVIDIA is 1.15 times more volatile than Shanghai Putailai New. It trades about 0.15 of its potential returns per unit of risk. Shanghai Putailai New is currently generating about -0.05 per unit of risk. If you would invest  1,769  in NVIDIA on October 5, 2024 and sell it today you would earn a total of  12,062  from holding NVIDIA or generate 681.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.36%
Values	Daily Returns

NVIDIA  vs.  Shanghai Putailai New

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.

Shanghai Putailai New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Putailai New has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Putailai 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 Shanghai Putailai

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

The idea behind NVIDIA and Shanghai Putailai New 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.