Correlation Between Meta Platforms and NVIDIA
Can any of the company-specific risk be diversified away by investing in both Meta Platforms 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 Meta Platforms and NVIDIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Meta Platforms and NVIDIA, you can compare the effects of market volatilities on Meta Platforms 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 Meta Platforms with a short position of NVIDIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meta Platforms and NVIDIA.
Diversification Opportunities for Meta Platforms and NVIDIA
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Meta and NVIDIA is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Meta Platforms 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 Meta Platforms 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 Meta Platforms i.e., Meta Platforms and NVIDIA go up and down completely randomly.
Pair Corralation between Meta Platforms and NVIDIA
Given the investment horizon of 90 days Meta Platforms is expected to generate 0.7 times more return on investment than NVIDIA. However, Meta Platforms is 1.43 times less risky than NVIDIA. It trades about -0.01 of its potential returns per unit of risk. NVIDIA is currently generating about -0.03 per unit of risk. If you would invest 57,816 in Meta Platforms on August 28, 2024 and sell it today you would lose (462.00) from holding Meta Platforms or give up 0.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Meta Platforms vs. NVIDIA
Performance |
| Timeline |
| Meta Platforms |
| NVIDIA |
Meta Platforms and NVIDIA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Meta Platforms and NVIDIA
The main advantage of trading using opposite Meta Platforms and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms 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.| Meta Platforms vs. Alphabet Inc Class A | Meta Platforms vs. Twilio Inc | Meta Platforms vs. Snap Inc | Meta Platforms vs. Baidu Inc |
| NVIDIA vs. Intel | NVIDIA vs. Taiwan Semiconductor Manufacturing | NVIDIA vs. Marvell Technology Group | NVIDIA vs. Micron Technology |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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