Correlation Between NVIDIA and Focusrite Plc

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

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

Diversification Opportunities for NVIDIA and Focusrite Plc

-0.59

Correlation Coefficient

NVIDIA  Focusrite Plc

Excellent diversification

The 3 months correlation between NVIDIA and Focusrite is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Focusrite plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focusrite plc 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 Focusrite Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focusrite plc has no effect on the direction of NVIDIA i.e., NVIDIA and Focusrite Plc go up and down completely randomly.

Pair Corralation between NVIDIA and Focusrite Plc

Given the investment horizon of 90 days NVIDIA is expected to generate 1.99 times more return on investment than Focusrite Plc. However, NVIDIA is 1.99 times more volatile than Focusrite plc. It trades about 0.06 of its potential returns per unit of risk. Focusrite plc is currently generating about -0.08 per unit of risk. If you would invest  10,962  in NVIDIA on September 28, 2024 and sell it today you would earn a total of  2,739  from holding NVIDIA or generate 24.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

NVIDIA  vs.  Focusrite plc

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.

Focusrite plc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Focusrite plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, Focusrite Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NVIDIA and Focusrite Plc

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

The idea behind NVIDIA and Focusrite plc 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.