Correlation Between NVIDIA and Analog Devices

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

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

Diversification Opportunities for NVIDIA and Analog Devices

0.16

Correlation Coefficient

NVIDIA  Analog Devices

Average diversification

The 3 months correlation between NVIDIA and Analog is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog 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 Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of NVIDIA i.e., NVIDIA and Analog Devices go up and down completely randomly.

Pair Corralation between NVIDIA and Analog Devices

Given the investment horizon of 90 days NVIDIA is expected to generate 1.84 times more return on investment than Analog Devices. However, NVIDIA is 1.84 times more volatile than Analog Devices. It trades about 0.1 of its potential returns per unit of risk. Analog Devices is currently generating about 0.04 per unit of risk. If you would invest  18,652  in NVIDIA on January 26, 2024 and sell it today you would earn a total of  61,025  from holding NVIDIA or generate 327.18% return on investment over 90 days.

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

NVIDIA  vs.  Analog Devices

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.

Analog Devices

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Analog Devices are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with NVIDIA and Analog Devices

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

The idea behind NVIDIA and Analog 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.