Correlation Between NVIDIA and Advanced Micro

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Can any of the company-specific risk be diversified away by investing in both NVIDIA and Advanced Micro 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 Advanced Micro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NVIDIA and Advanced Micro Devices, you can compare the effects of market volatilities on NVIDIA and Advanced Micro 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 Advanced Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVIDIA and Advanced Micro.

Diversification Opportunities for NVIDIA and Advanced Micro

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between NVIDIA and Advanced is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Advanced Micro Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Micro Devices 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 Advanced Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Micro Devices has no effect on the direction of NVIDIA i.e., NVIDIA and Advanced Micro go up and down completely randomly.

Pair Corralation between NVIDIA and Advanced Micro

Given the investment horizon of 90 days NVIDIA is expected to generate 0.92 times more return on investment than Advanced Micro. However, NVIDIA is 1.08 times less risky than Advanced Micro. It trades about 0.25 of its potential returns per unit of risk. Advanced Micro Devices is currently generating about 0.05 per unit of risk. If you would invest  77,659  in NVIDIA on December 30, 2023 and sell it today you would earn a total of  12,697  from holding NVIDIA or generate 16.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

NVIDIA  vs.  Advanced Micro Devices

 Performance 
       Timeline  
NVIDIA 

Risk-Adjusted Performance

26 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 26 (%) 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.
Advanced Micro Devices 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Micro Devices are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Advanced Micro exhibited solid returns over the last few months and may actually be approaching a breakup point.

NVIDIA and Advanced Micro Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NVIDIA and Advanced Micro

The main advantage of trading using opposite NVIDIA and Advanced Micro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA position performs unexpectedly, Advanced Micro 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 Advanced Micro will offset losses from the drop in Advanced Micro's long position.
The idea behind NVIDIA and Advanced Micro Devices 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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