Correlation Between NVIDIA and Pure Storage

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

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

Diversification Opportunities for NVIDIA and Pure Storage

-0.32

Correlation Coefficient

NVIDIA  Pure Storage

Very good diversification

The 3 months correlation between NVIDIA and Pure is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Pure Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pure Storage 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 Pure Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pure Storage has no effect on the direction of NVIDIA i.e., NVIDIA and Pure Storage go up and down completely randomly.

Pair Corralation between NVIDIA and Pure Storage

Given the investment horizon of 90 days NVIDIA is expected to generate 5.21 times less return on investment than Pure Storage. But when comparing it to its historical volatility, NVIDIA is 1.56 times less risky than Pure Storage. It trades about 0.04 of its potential returns per unit of risk. Pure Storage is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  5,407  in Pure Storage on October 26, 2024 and sell it today you would earn a total of  1,830  from holding Pure Storage or generate 33.85% return on investment over 90 days.

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

NVIDIA  vs.  Pure Storage

NVIDIA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 3 (%) 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.

Pure Storage

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Storage are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Pure Storage reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NVIDIA and Pure Storage

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

The idea behind NVIDIA and Pure Storage 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.