Correlation Between Applied Materials, and NVIDIA

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Can any of the company-specific risk be diversified away by investing in both Applied Materials, 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 Applied Materials, and NVIDIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials, and NVIDIA, you can compare the effects of market volatilities on Applied Materials, 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 Applied Materials, with a short position of NVIDIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials, and NVIDIA.

Diversification Opportunities for Applied Materials, and NVIDIA

0.17
  Correlation Coefficient

Average diversification

The 3 months correlation between Applied and NVIDIA is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials, and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Applied Materials, 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 Applied Materials, 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 Applied Materials, i.e., Applied Materials, and NVIDIA go up and down completely randomly.

Pair Corralation between Applied Materials, and NVIDIA

Assuming the 90 days trading horizon Applied Materials, is expected to generate 41.68 times less return on investment than NVIDIA. But when comparing it to its historical volatility, Applied Materials, is 28.1 times less risky than NVIDIA. It trades about 0.06 of its potential returns per unit of risk. NVIDIA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  489.00  in NVIDIA on October 30, 2024 and sell it today you would earn a total of  972.00  from holding NVIDIA or generate 198.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy98.89%
ValuesDaily Returns

Applied Materials,  vs.  NVIDIA

 Performance 
       Timeline  
Applied Materials, 

Risk-Adjusted Performance

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Strong
Very Weak
Over the last 90 days Applied Materials, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Applied Materials, is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
NVIDIA 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Weak
Over the last 90 days NVIDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Applied Materials, and NVIDIA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Applied Materials, and NVIDIA

The main advantage of trading using opposite Applied Materials, and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials, 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 Applied Materials, 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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