Correlation Between NVIDIA and Vertical Aerospace

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

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

Diversification Opportunities for NVIDIA and Vertical Aerospace

0.71

Correlation Coefficient

NVIDIA  Vertical Aerospace

Poor diversification

The 3 months correlation between NVIDIA and Vertical is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Vertical Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertical Aerospace 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 Vertical Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertical Aerospace has no effect on the direction of NVIDIA i.e., NVIDIA and Vertical Aerospace go up and down completely randomly.

Pair Corralation between NVIDIA and Vertical Aerospace

Given the investment horizon of 90 days NVIDIA is expected to generate 0.49 times more return on investment than Vertical Aerospace. However, NVIDIA is 2.05 times less risky than Vertical Aerospace. It trades about -0.07 of its potential returns per unit of risk. Vertical Aerospace is currently generating about -0.19 per unit of risk. If you would invest  13,748  in NVIDIA on December 29, 2024 and sell it today you would lose (2,781) from holding NVIDIA or give up 20.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

NVIDIA  vs.  Vertical Aerospace

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 unsteady performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Vertical Aerospace

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vertical Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with NVIDIA and Vertical Aerospace

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

The idea behind NVIDIA and Vertical Aerospace 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.