Correlation Between NVIDIA and Floor Decor

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

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

Diversification Opportunities for NVIDIA and Floor Decor

-0.66

Correlation Coefficient

NVIDIA  Floor Decor

Excellent diversification

The 3 months correlation between NVIDIA and Floor is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Floor Decor Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floor Decor Holdings 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 Floor Decor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floor Decor Holdings has no effect on the direction of NVIDIA i.e., NVIDIA and Floor Decor go up and down completely randomly.

Pair Corralation between NVIDIA and Floor Decor

Given the investment horizon of 90 days NVIDIA is expected to under-perform the Floor Decor. But the stock apears to be less risky and, when comparing its historical volatility, NVIDIA is 1.14 times less risky than Floor Decor. The stock trades about -0.14 of its potential returns per unit of risk. The Floor Decor Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  10,426  in Floor Decor Holdings on September 12, 2024 and sell it today you would earn a total of  758.00  from holding Floor Decor Holdings or generate 7.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

NVIDIA  vs.  Floor Decor Holdings

NVIDIA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

Floor Decor Holdings

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Floor Decor Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Floor Decor is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NVIDIA and Floor Decor

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

The idea behind NVIDIA and Floor Decor Holdings 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.