Correlation Between NVIDIA and Devon Energy

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

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

Diversification Opportunities for NVIDIA and Devon Energy

0.39

Correlation Coefficient

NVIDIA  Devon Energy

Weak diversification

The 3 months correlation between NVIDIA and Devon is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon 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 Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of NVIDIA i.e., NVIDIA and Devon Energy go up and down completely randomly.

Pair Corralation between NVIDIA and Devon Energy

Given the investment horizon of 90 days NVIDIA is expected to generate 1.25 times more return on investment than Devon Energy. However, NVIDIA is 1.25 times more volatile than Devon Energy. It trades about 0.08 of its potential returns per unit of risk. Devon Energy is currently generating about -0.08 per unit of risk. If you would invest  12,491  in NVIDIA on October 4, 2024 and sell it today you would earn a total of  1,340  from holding NVIDIA or generate 10.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

NVIDIA  vs.  Devon Energy

NVIDIA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Devon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with NVIDIA and Devon Energy

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

The idea behind NVIDIA and Devon 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.