Correlation Between NVIDIA and Tsmxx

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

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

Diversification Opportunities for NVIDIA and Tsmxx

-0.37

Correlation Coefficient

NVIDIA  Tsmxx

Very good diversification

The 3 months correlation between NVIDIA and Tsmxx is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Tsmxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tsmxx 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 Tsmxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tsmxx has no effect on the direction of NVIDIA i.e., NVIDIA and Tsmxx go up and down completely randomly.

Pair Corralation between NVIDIA and Tsmxx

Given the investment horizon of 90 days NVIDIA is expected to generate 15.61 times less return on investment than Tsmxx. But when comparing it to its historical volatility, NVIDIA is 17.91 times less risky than Tsmxx. It trades about 0.13 of its potential returns per unit of risk. Tsmxx is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  512.00  in Tsmxx on October 5, 2024 and sell it today you would lose (85.00) from holding Tsmxx or give up 16.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	84.52%
Values	Daily Returns

NVIDIA  vs.  Tsmxx

NVIDIA

Risk-Adjusted Performance

7 of 100

Modest

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.

Tsmxx

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tsmxx are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Tsmxx showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NVIDIA and Tsmxx

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

The idea behind NVIDIA and Tsmxx 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.