Correlation Between NVIDIA and Global Quality

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

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

Diversification Opportunities for NVIDIA and Global Quality

0.46

Correlation Coefficient

NVIDIA  Global Quality

Very weak diversification

The 3 months correlation between NVIDIA and Global is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Global Quality Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Quality Portfolio 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 Global Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Quality Portfolio has no effect on the direction of NVIDIA i.e., NVIDIA and Global Quality go up and down completely randomly.

Pair Corralation between NVIDIA and Global Quality

Given the investment horizon of 90 days NVIDIA is expected to generate 4.33 times more return on investment than Global Quality. However, NVIDIA is 4.33 times more volatile than Global Quality Portfolio. It trades about 0.15 of its potential returns per unit of risk. Global Quality Portfolio is currently generating about 0.07 per unit of risk. If you would invest  28,901  in NVIDIA on January 25, 2024 and sell it today you would earn a total of  53,522  from holding NVIDIA or generate 185.19% return on investment over 90 days.

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

NVIDIA  vs.  Global Quality Portfolio

NVIDIA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 11 (%) 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.

Global Quality Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Quality Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Global Quality is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NVIDIA and Global Quality

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

The idea behind NVIDIA and Global Quality Portfolio 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.