Correlation Between NVIDIA and Destinations Municipal

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

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

Diversification Opportunities for NVIDIA and Destinations Municipal

-0.35

Correlation Coefficient

NVIDIA  Destinations Municipal

Very good diversification

The 3 months correlation between NVIDIA and Destinations is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Destinations Municipal Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Destinations Municipal 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 Destinations Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Destinations Municipal has no effect on the direction of NVIDIA i.e., NVIDIA and Destinations Municipal go up and down completely randomly.

Pair Corralation between NVIDIA and Destinations Municipal

Given the investment horizon of 90 days NVIDIA is expected to generate 18.97 times more return on investment than Destinations Municipal. However, NVIDIA is 18.97 times more volatile than Destinations Municipal Fixed. It trades about 0.14 of its potential returns per unit of risk. Destinations Municipal Fixed is currently generating about 0.06 per unit of risk. If you would invest  2,177  in NVIDIA on October 5, 2024 and sell it today you would earn a total of  11,654  from holding NVIDIA or generate 535.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

NVIDIA  vs.  Destinations Municipal Fixed

NVIDIA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 5 (%) 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.

Destinations Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Destinations Municipal Fixed has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Destinations Municipal is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NVIDIA and Destinations Municipal

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

The idea behind NVIDIA and Destinations Municipal Fixed 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.