Correlation Between NVIDIA and Aeroports

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

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

Diversification Opportunities for NVIDIA and Aeroports

0.27

Correlation Coefficient

NVIDIA  Aeroports

Modest diversification

The 3 months correlation between NVIDIA and Aeroports is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Aeroports de Paris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeroports de Paris 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 Aeroports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeroports de Paris has no effect on the direction of NVIDIA i.e., NVIDIA and Aeroports go up and down completely randomly.

Pair Corralation between NVIDIA and Aeroports

Given the investment horizon of 90 days NVIDIA is expected to under-perform the Aeroports. In addition to that, NVIDIA is 2.45 times more volatile than Aeroports de Paris. It trades about -0.01 of its total potential returns per unit of risk. Aeroports de Paris is currently generating about -0.02 per unit of volatility. If you would invest  11,420  in Aeroports de Paris on November 28, 2024 and sell it today you would lose (279.00) from holding Aeroports de Paris or give up 2.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.08%
Values	Daily Returns

NVIDIA  vs.  Aeroports de Paris

NVIDIA

Risk-Adjusted Performance

Very Weak

Over the last 90 days NVIDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, NVIDIA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Aeroports de Paris

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aeroports de Paris has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aeroports is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NVIDIA and Aeroports

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

The idea behind NVIDIA and Aeroports de Paris 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.