Correlation Between NVIDIA and Axon Enterprise

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

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

Diversification Opportunities for NVIDIA and Axon Enterprise

0.27

Correlation Coefficient

NVIDIA  Axon Enterprise

Modest diversification

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

Pair Corralation between NVIDIA and Axon Enterprise

Given the investment horizon of 90 days NVIDIA is expected to under-perform the Axon Enterprise. In addition to that, NVIDIA is 1.02 times more volatile than Axon Enterprise. It trades about -0.05 of its total potential returns per unit of risk. Axon Enterprise is currently generating about -0.02 per unit of volatility. If you would invest  60,432  in Axon Enterprise on December 28, 2024 and sell it today you would lose (5,367) from holding Axon Enterprise or give up 8.88% of portfolio value over 90 days.

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

NVIDIA  vs.  Axon Enterprise

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 unfluctuating 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.

Axon Enterprise

Risk-Adjusted Performance

Very Weak

Over the last 90 days Axon Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Axon Enterprise 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 Axon Enterprise

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

The idea behind NVIDIA and Axon Enterprise 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.