Correlation Between NVIDIA and China New

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Can any of the company-specific risk be diversified away by investing in both NVIDIA and China New 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 China New into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NVIDIA and China New Energy, you can compare the effects of market volatilities on NVIDIA and China New 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 China New. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVIDIA and China New.

Diversification Opportunities for NVIDIA and China New

-0.4
  Correlation Coefficient

Very good diversification

The 3 months correlation between NVIDIA and China is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and China New Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China New Energy 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 China New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China New Energy has no effect on the direction of NVIDIA i.e., NVIDIA and China New go up and down completely randomly.

Pair Corralation between NVIDIA and China New

Given the investment horizon of 90 days NVIDIA is expected to generate 53.65 times less return on investment than China New. But when comparing it to its historical volatility, NVIDIA is 12.16 times less risky than China New. It trades about 0.02 of its potential returns per unit of risk. China New Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  0.40  in China New Energy on October 12, 2024 and sell it today you would earn a total of  0.00  from holding China New Energy or generate 0.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

NVIDIA  vs.  China New Energy

 Performance 
       Timeline  
NVIDIA 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, NVIDIA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
China New Energy 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in China New Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, China New reported solid returns over the last few months and may actually be approaching a breakup point.

NVIDIA and China New Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NVIDIA and China New

The main advantage of trading using opposite NVIDIA and China New positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA position performs unexpectedly, China New 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 China New will offset losses from the drop in China New's long position.
The idea behind NVIDIA and China New Energy 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.
Check out your portfolio center.
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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