Correlation Between Diodes Incorporated and NVIDIA

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

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

Diversification Opportunities for Diodes Incorporated and NVIDIA

-0.03

Correlation Coefficient

Diodes Incorporated  NVIDIA

Good diversification

The 3 months correlation between Diodes and NVIDIA is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Diodes Incorporated and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Diodes Incorporated 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 Diodes Incorporated 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 Diodes Incorporated i.e., Diodes Incorporated and NVIDIA go up and down completely randomly.

Pair Corralation between Diodes Incorporated and NVIDIA

Given the investment horizon of 90 days Diodes Incorporated is expected to generate 7.99 times less return on investment than NVIDIA. But when comparing it to its historical volatility, Diodes Incorporated is 1.34 times less risky than NVIDIA. It trades about 0.02 of its potential returns per unit of risk. NVIDIA is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  14,948  in NVIDIA on January 24, 2024 and sell it today you would earn a total of  64,570  from holding NVIDIA or generate 431.96% return on investment over 90 days.

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

Diodes Incorporated  vs.  NVIDIA

Diodes Incorporated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diodes Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Diodes Incorporated is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

NVIDIA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diodes Incorporated and NVIDIA

The main advantage of trading using opposite Diodes Incorporated and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diodes Incorporated 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 Diodes Incorporated 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..