Correlation Between NVIDIA and Aluminum Futures

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

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

Diversification Opportunities for NVIDIA and Aluminum Futures

0.72

Correlation Coefficient

NVIDIA  Aluminum Futures

Poor diversification

The 3 months correlation between NVIDIA and Aluminum is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Aluminum Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminum Futures 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 Aluminum Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminum Futures has no effect on the direction of NVIDIA i.e., NVIDIA and Aluminum Futures go up and down completely randomly.

Pair Corralation between NVIDIA and Aluminum Futures

Given the investment horizon of 90 days NVIDIA is expected to generate 1.46 times more return on investment than Aluminum Futures. However, NVIDIA is 1.46 times more volatile than Aluminum Futures. It trades about 0.17 of its potential returns per unit of risk. Aluminum Futures is currently generating about 0.11 per unit of risk. If you would invest  10,799  in NVIDIA on September 3, 2024 and sell it today you would earn a total of  3,064  from holding NVIDIA or generate 28.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

NVIDIA  vs.  Aluminum Futures

NVIDIA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

Aluminum Futures

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum Futures are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward indicators, Aluminum Futures may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NVIDIA and Aluminum Futures

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

The idea behind NVIDIA and Aluminum Futures 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.