Correlation Between NVIDIA and Alamo

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

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

Diversification Opportunities for NVIDIA and Alamo

-0.05

Correlation Coefficient

NVIDIA  Alamo

Good diversification

The 3 months correlation between NVIDIA and Alamo is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Alamo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alamo Group 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 Alamo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alamo Group has no effect on the direction of NVIDIA i.e., NVIDIA and Alamo go up and down completely randomly.

Pair Corralation between NVIDIA and Alamo

Given the investment horizon of 90 days NVIDIA is expected to under-perform the Alamo. In addition to that, NVIDIA is 3.0 times more volatile than Alamo Group. It trades about -0.03 of its total potential returns per unit of risk. Alamo Group is currently generating about 0.01 per unit of volatility. If you would invest  18,803  in Alamo Group on December 20, 2024 and sell it today you would earn a total of  23.00  from holding Alamo Group or generate 0.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NVIDIA  vs.  Alamo Group

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 latest unsteady performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Alamo Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alamo Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Alamo 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 Alamo

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

The idea behind NVIDIA and Alamo Group 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.