Correlation Between NVIDIA and Arm Holdings

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

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

Diversification Opportunities for NVIDIA and Arm Holdings

0.54

Correlation Coefficient

NVIDIA  Arm Holdings

Very weak diversification

The 3 months correlation between NVIDIA and Arm is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Arm Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arm Holdings plc 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 Arm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arm Holdings plc has no effect on the direction of NVIDIA i.e., NVIDIA and Arm Holdings go up and down completely randomly.

Pair Corralation between NVIDIA and Arm Holdings

Given the investment horizon of 90 days NVIDIA is expected to under-perform the Arm Holdings. But the stock apears to be less risky and, when comparing its historical volatility, NVIDIA is 1.08 times less risky than Arm Holdings. The stock trades about -0.05 of its potential returns per unit of risk. The Arm Holdings plc is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  13,179  in Arm Holdings plc on December 24, 2024 and sell it today you would lose (1,272) from holding Arm Holdings plc or give up 9.65% of portfolio value over 90 days.

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

NVIDIA  vs.  Arm Holdings plc

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 unsteady performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Arm Holdings plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arm Holdings plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Arm Holdings is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with NVIDIA and Arm Holdings

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

The idea behind NVIDIA and Arm Holdings plc 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.