Correlation Between NVIDIA and Cerrado Gold

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

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

Diversification Opportunities for NVIDIA and Cerrado Gold

-0.03

Correlation Coefficient

NVIDIA  Cerrado Gold

Good diversification

The 3 months correlation between NVIDIA and Cerrado is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Cerrado Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cerrado Gold 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 Cerrado Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cerrado Gold has no effect on the direction of NVIDIA i.e., NVIDIA and Cerrado Gold go up and down completely randomly.

Pair Corralation between NVIDIA and Cerrado Gold

Given the investment horizon of 90 days NVIDIA is expected to under-perform the Cerrado Gold. But the stock apears to be less risky and, when comparing its historical volatility, NVIDIA is 1.57 times less risky than Cerrado Gold. The stock trades about -0.01 of its potential returns per unit of risk. The Cerrado Gold is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  26.00  in Cerrado Gold on November 28, 2024 and sell it today you would earn a total of  4.00  from holding Cerrado Gold or generate 15.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

NVIDIA  vs.  Cerrado Gold

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 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.

Cerrado Gold

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cerrado Gold are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cerrado Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NVIDIA and Cerrado Gold

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

The idea behind NVIDIA and Cerrado Gold 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.