Correlation Between NVIDIA and Kensington Active

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

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

Diversification Opportunities for NVIDIA and Kensington Active

0.36

Correlation Coefficient

NVIDIA  Kensington Active

Weak diversification

The 3 months correlation between NVIDIA and Kensington is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Kensington Active Advantage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kensington Active 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 Kensington Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kensington Active has no effect on the direction of NVIDIA i.e., NVIDIA and Kensington Active go up and down completely randomly.

Pair Corralation between NVIDIA and Kensington Active

Given the investment horizon of 90 days NVIDIA is expected to generate 4.88 times more return on investment than Kensington Active. However, NVIDIA is 4.88 times more volatile than Kensington Active Advantage. It trades about 0.07 of its potential returns per unit of risk. Kensington Active Advantage is currently generating about 0.05 per unit of risk. If you would invest  12,771  in NVIDIA on October 5, 2024 and sell it today you would earn a total of  1,060  from holding NVIDIA or generate 8.3% return on investment over 90 days.

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

NVIDIA  vs.  Kensington Active Advantage

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.

Kensington Active

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kensington Active Advantage are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Kensington Active is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NVIDIA and Kensington Active

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

The idea behind NVIDIA and Kensington Active Advantage 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.