Correlation Between Teradyne and NVIDIA

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

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

Diversification Opportunities for Teradyne and NVIDIA

0.81

Correlation Coefficient

Teradyne  NVIDIA

Very poor diversification

The 3 months correlation between Teradyne and NVIDIA is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Teradyne and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Teradyne 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 Teradyne are associated (or correlated) with NVIDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA has no effect on the direction of Teradyne i.e., Teradyne and NVIDIA go up and down completely randomly.

Pair Corralation between Teradyne and NVIDIA

Considering the 90-day investment horizon Teradyne is expected to under-perform the NVIDIA. But the stock apears to be less risky and, when comparing its historical volatility, Teradyne is 1.25 times less risky than NVIDIA. The stock trades about -0.19 of its potential returns per unit of risk. The NVIDIA is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  13,748  in NVIDIA on December 30, 2024 and sell it today you would lose (2,781) from holding NVIDIA or give up 20.23% of portfolio value over 90 days.

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

Teradyne  vs.  NVIDIA

Teradyne

Risk-Adjusted Performance

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

NVIDIA

Risk-Adjusted Performance

Very Weak

Over the last 90 days NVIDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Teradyne and NVIDIA

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

The idea behind Teradyne and NVIDIA 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..