Can any of the company-specific risk be diversified away by investing in both NVIDIA and Eubel Brady 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 Eubel Brady into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NVIDIA and Eubel Brady Suttman, you can compare the effects of market volatilities on NVIDIA and Eubel Brady 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 Eubel Brady. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVIDIA and Eubel Brady.
Diversification Opportunities for NVIDIA and Eubel Brady
The 3 months correlation between NVIDIA and Eubel is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and EUBEL BRADY SUTTMAN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eubel Brady Suttman 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 Eubel Brady. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eubel Brady Suttman has no effect on the direction of NVIDIA i.e., NVIDIA and Eubel Brady go up and down completely randomly.
Given the investment horizon of 90 days NVIDIA is expected to generate 8.35 times more return on investment than Eubel Brady. However, NVIDIA is 8.35 times more volatile than Eubel Brady Suttman. It trades about 0.28 of its potential returns per unit of risk. Eubel Brady Suttman is currently generating about 0.31 per unit of risk. If you would invest 42,325 in NVIDIA on September 2, 2023 and sell it today you would earn a total of 4,445 from holding NVIDIA or generate 10.5% return on investment over 90 days.
Over the last 90 days NVIDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, NVIDIA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Eubel Brady Suttman are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Eubel Brady is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
The main advantage of trading using opposite NVIDIA and Eubel Brady positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA position performs unexpectedly, Eubel Brady 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 Eubel Brady will offset losses from the drop in Eubel Brady's long position.
The idea behind NVIDIA and Eubel Brady Suttman 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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