Correlation Between Dow Jones and NVIDIA
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and NVIDIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and NVIDIA, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of NVIDIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and NVIDIA.
Diversification Opportunities for Dow Jones and NVIDIA
Poor diversification
The 3 months correlation between Dow and NVIDIA is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and NVIDIA go up and down completely randomly.
Pair Corralation between Dow Jones and NVIDIA
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.68 times less return on investment than NVIDIA. But when comparing it to its historical volatility, Dow Jones Industrial is 2.74 times less risky than NVIDIA. It trades about 0.15 of its potential returns per unit of risk. NVIDIA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 1,655 in NVIDIA on August 24, 2024 and sell it today you would earn a total of 124.00 from holding NVIDIA or generate 7.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 91.3% |
| Values | Daily Returns |
Dow Jones Industrial vs. NVIDIA
Performance |
| Timeline |
Dow Jones and NVIDIA Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
NVIDIA
Pair trading matchups for NVIDIA
Pair Trading with Dow Jones and NVIDIA
The main advantage of trading using opposite Dow Jones and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. Perseus Mining Limited | Dow Jones vs. Titan Machinery | Dow Jones vs. Simon Property Group |
| NVIDIA vs. Taiwan Semiconductor Manufacturing | NVIDIA vs. Broadcom | NVIDIA vs. Micron Technology | NVIDIA vs. NXP Semiconductors NV |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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