Correlation Between NVIDIA and Absolute Capital

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

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

Diversification Opportunities for NVIDIA and Absolute Capital

0.77

Correlation Coefficient

NVIDIA  Absolute Capital

Poor diversification

The 1 month correlation between NVIDIA and Absolute is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Absolute Capital Defender in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Capital Defender 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 Absolute Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Capital Defender has no effect on the direction of NVIDIA i.e., NVIDIA and Absolute Capital go up and down completely randomly.

Pair Corralation between NVIDIA and Absolute Capital

Given the investment horizon of 90 days NVIDIA is expected to generate 8.91 times more return on investment than Absolute Capital. However, NVIDIA is 8.91 times more volatile than Absolute Capital Defender. It trades about 0.02 of its potential returns per unit of risk. Absolute Capital Defender is currently generating about -0.04 per unit of risk. If you would invest  78,813  in NVIDIA on January 24, 2024 and sell it today you would earn a total of  705.00  from holding NVIDIA or generate 0.89% return on investment over 90 days.

Time Period	1 Month [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

NVIDIA  vs.  Absolute Capital Defender

NVIDIA

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days NVIDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Absolute Capital Defender

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Absolute Capital Defender has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest fragile performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with NVIDIA and Absolute Capital

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

The idea behind NVIDIA and Absolute Capital Defender 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.