Correlation Between NVIDIA and Gen Digital

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

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

Diversification Opportunities for NVIDIA and Gen Digital

0.11

Correlation Coefficient

NVIDIA  Gen Digital

Average diversification

The 3 months correlation between NVIDIA and Gen is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Gen Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gen Digital 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 Gen Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gen Digital has no effect on the direction of NVIDIA i.e., NVIDIA and Gen Digital go up and down completely randomly.

Pair Corralation between NVIDIA and Gen Digital

Given the investment horizon of 90 days NVIDIA is expected to generate 1.29 times less return on investment than Gen Digital. In addition to that, NVIDIA is 4.56 times more volatile than Gen Digital. It trades about 0.04 of its total potential returns per unit of risk. Gen Digital is currently generating about 0.26 per unit of volatility. If you would invest  17,003  in Gen Digital on October 6, 2024 and sell it today you would earn a total of  890.00  from holding Gen Digital or generate 5.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.68%
Values	Daily Returns

NVIDIA  vs.  Gen Digital

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.

Gen Digital

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with NVIDIA and Gen Digital

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

The idea behind NVIDIA and Gen Digital 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.