Correlation Between Western Investment and NVIDIA CDR

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

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

Diversification Opportunities for Western Investment and NVIDIA CDR

-0.43

Correlation Coefficient

Western Investment  NVIDIA CDR

Very good diversification

The 3 months correlation between Western and NVIDIA is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Western Investment and NVIDIA CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA CDR and Western Investment 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 Western Investment are associated (or correlated) with NVIDIA CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA CDR has no effect on the direction of Western Investment i.e., Western Investment and NVIDIA CDR go up and down completely randomly.

Pair Corralation between Western Investment and NVIDIA CDR

Given the investment horizon of 90 days Western Investment is expected to generate 1.43 times more return on investment than NVIDIA CDR. However, Western Investment is 1.43 times more volatile than NVIDIA CDR. It trades about 0.59 of its potential returns per unit of risk. NVIDIA CDR is currently generating about -0.02 per unit of risk. If you would invest  45.00  in Western Investment on October 4, 2024 and sell it today you would earn a total of  20.00  from holding Western Investment or generate 44.44% return on investment over 90 days.

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

Western Investment  vs.  NVIDIA CDR

Western Investment

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Investment are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Western Investment showed solid returns over the last few months and may actually be approaching a breakup point.

NVIDIA CDR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA CDR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, NVIDIA CDR may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Western Investment and NVIDIA CDR

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

The idea behind Western Investment and NVIDIA CDR 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.