Correlation Between NVIDIA and Soybean Oil

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

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

Diversification Opportunities for NVIDIA and Soybean Oil

0.65

Correlation Coefficient

NVIDIA  Soybean Oil

Poor diversification

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

Pair Corralation between NVIDIA and Soybean Oil

Given the investment horizon of 90 days NVIDIA is expected to generate 1.17 times more return on investment than Soybean Oil. However, NVIDIA is 1.17 times more volatile than Soybean Oil Futures. It trades about 0.17 of its potential returns per unit of risk. Soybean Oil Futures is currently generating about 0.02 per unit of risk. If you would invest  10,799  in NVIDIA on September 3, 2024 and sell it today you would earn a total of  3,064  from holding NVIDIA or generate 28.37% return on investment over 90 days.

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

NVIDIA  vs.  Soybean Oil Futures

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.

Soybean Oil Futures

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Soybean Oil Futures are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Soybean Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NVIDIA and Soybean Oil

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

The idea behind NVIDIA and Soybean Oil Futures 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.