Correlation Between NVIDIA and Teijin

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

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

Diversification Opportunities for NVIDIA and Teijin

-0.65

Correlation Coefficient

NVIDIA  Teijin

Excellent diversification

The 3 months correlation between NVIDIA and Teijin is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Teijin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teijin 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 Teijin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teijin has no effect on the direction of NVIDIA i.e., NVIDIA and Teijin go up and down completely randomly.

Pair Corralation between NVIDIA and Teijin

Given the investment horizon of 90 days NVIDIA is expected to generate 1.29 times more return on investment than Teijin. However, NVIDIA is 1.29 times more volatile than Teijin. It trades about 0.06 of its potential returns per unit of risk. Teijin is currently generating about -0.03 per unit of risk. If you would invest  11,498  in NVIDIA on September 1, 2024 and sell it today you would earn a total of  2,327  from holding NVIDIA or generate 20.24% return on investment over 90 days.

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

NVIDIA  vs.  Teijin

NVIDIA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 13 (%) 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.

Teijin

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teijin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with NVIDIA and Teijin

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

The idea behind NVIDIA and Teijin 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.