Correlation Between NVIDIA and Pacific Gas

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

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

Diversification Opportunities for NVIDIA and Pacific Gas

0.63

Correlation Coefficient

NVIDIA  Pacific Gas

Poor diversification

The 3 months correlation between NVIDIA and Pacific is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Pacific Gas Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Gas Electric 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 Pacific Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Gas Electric has no effect on the direction of NVIDIA i.e., NVIDIA and Pacific Gas go up and down completely randomly.

Pair Corralation between NVIDIA and Pacific Gas

Given the investment horizon of 90 days NVIDIA is expected to generate 1.12 times more return on investment than Pacific Gas. However, NVIDIA is 1.12 times more volatile than Pacific Gas Electric. It trades about 0.04 of its potential returns per unit of risk. Pacific Gas Electric is currently generating about 0.04 per unit of risk. If you would invest  12,428  in NVIDIA on September 29, 2024 and sell it today you would earn a total of  1,273  from holding NVIDIA or generate 10.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	60.32%
Values	Daily Returns

NVIDIA  vs.  Pacific Gas Electric

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.

Pacific Gas Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pacific Gas Electric has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Preferred Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with NVIDIA and Pacific Gas

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

The idea behind NVIDIA and Pacific Gas Electric 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.