Correlation Between NVIDIA and Johnson Controls

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

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

Diversification Opportunities for NVIDIA and Johnson Controls

0.36

Correlation Coefficient

NVIDIA  Johnson Controls

Weak diversification

The 3 months correlation between NVIDIA and Johnson is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Johnson Controls International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Controls Int 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 Johnson Controls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Controls Int has no effect on the direction of NVIDIA i.e., NVIDIA and Johnson Controls go up and down completely randomly.

Pair Corralation between NVIDIA and Johnson Controls

Given the investment horizon of 90 days NVIDIA is expected to generate 1.8 times more return on investment than Johnson Controls. However, NVIDIA is 1.8 times more volatile than Johnson Controls International. It trades about 0.15 of its potential returns per unit of risk. Johnson Controls International is currently generating about 0.04 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	Very Weak
Accuracy	98.8%
Values	Daily Returns

NVIDIA  vs.  Johnson Controls International

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.

Johnson Controls Int

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Controls International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Johnson Controls may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NVIDIA and Johnson Controls

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

The idea behind NVIDIA and Johnson Controls International 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.