Correlation Between NVIDIA and SMS Co,

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

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

Diversification Opportunities for NVIDIA and SMS Co,

-0.53

Correlation Coefficient

NVIDIA  SMS Co,

Excellent diversification

The 3 months correlation between NVIDIA and SMS is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and SMS Co, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMS Co, 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 SMS Co,. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMS Co, has no effect on the direction of NVIDIA i.e., NVIDIA and SMS Co, go up and down completely randomly.

Pair Corralation between NVIDIA and SMS Co,

Given the investment horizon of 90 days NVIDIA is expected to generate 0.87 times more return on investment than SMS Co,. However, NVIDIA is 1.14 times less risky than SMS Co,. It trades about 0.13 of its potential returns per unit of risk. SMS Co, is currently generating about -0.02 per unit of risk. If you would invest  4,477  in NVIDIA on September 26, 2024 and sell it today you would earn a total of  9,545  from holding NVIDIA or generate 213.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.68%
Values	Daily Returns

NVIDIA  vs.  SMS Co,

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 weak fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

SMS Co,

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMS Co, has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with NVIDIA and SMS Co,

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

The idea behind NVIDIA and SMS Co, 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 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.