Correlation Between NVIDIA and Financial Services

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

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

Diversification Opportunities for NVIDIA and Financial Services

0.63

Correlation Coefficient

NVIDIA  Financial Services

Poor diversification

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

Pair Corralation between NVIDIA and Financial Services

Given the investment horizon of 90 days NVIDIA is expected to generate 3.16 times more return on investment than Financial Services. However, NVIDIA is 3.16 times more volatile than Financial Services Fund. It trades about 0.15 of its potential returns per unit of risk. Financial Services Fund is currently generating about 0.06 per unit of risk. If you would invest  1,689  in NVIDIA on October 4, 2024 and sell it today you would earn a total of  11,740  from holding NVIDIA or generate 695.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

NVIDIA  vs.  Financial Services Fund

NVIDIA

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 6 (%) 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.

Financial Services

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Financial Services 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 Financial Services

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

The idea behind NVIDIA and Financial Services Fund 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.