Correlation Between NVIDIA and Brother Industries

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

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

Diversification Opportunities for NVIDIA and Brother Industries

0.69

Correlation Coefficient

NVIDIA  Brother Industries

Poor diversification

The 3 months correlation between NVIDIA and Brother is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Brother Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brother Industries 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 Brother Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brother Industries has no effect on the direction of NVIDIA i.e., NVIDIA and Brother Industries go up and down completely randomly.

Pair Corralation between NVIDIA and Brother Industries

Given the investment horizon of 90 days NVIDIA is expected to generate 0.14 times more return on investment than Brother Industries. However, NVIDIA is 7.1 times less risky than Brother Industries. It trades about 0.16 of its potential returns per unit of risk. Brother Industries is currently generating about -0.1 per unit of risk. If you would invest  1,403  in NVIDIA on September 18, 2024 and sell it today you would earn a total of  11,797  from holding NVIDIA or generate 840.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	36.36%
Values	Daily Returns

NVIDIA  vs.  Brother Industries

NVIDIA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 8 (%) 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.

Brother Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brother Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NVIDIA and Brother Industries

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

The idea behind NVIDIA and Brother Industries 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.