Correlation Between NVIDIA and BFT
Can any of the company-specific risk be diversified away by investing in both NVIDIA and BFT 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 BFT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NVIDIA and BFT, you can compare the effects of market volatilities on NVIDIA and BFT 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 BFT. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVIDIA and BFT.
Diversification Opportunities for NVIDIA and BFT
Very weak diversification
The 3 months correlation between NVIDIA and BFT is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and BFT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BFT 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 BFT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BFT has no effect on the direction of NVIDIA i.e., NVIDIA and BFT go up and down completely randomly.
Pair Corralation between NVIDIA and BFT
Given the investment horizon of 90 days NVIDIA is expected to generate 3.39 times less return on investment than BFT. But when comparing it to its historical volatility, NVIDIA is 3.74 times less risky than BFT. It trades about 0.11 of its potential returns per unit of risk. BFT is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 0.18 in BFT on August 24, 2024 and sell it today you would earn a total of 0.02 from holding BFT or generate 11.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NVIDIA vs. BFT
Performance |
| Timeline |
| NVIDIA |
| BFT |
NVIDIA and BFT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NVIDIA and BFT
The main advantage of trading using opposite NVIDIA and BFT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA position performs unexpectedly, BFT 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 BFT will offset losses from the drop in BFT's long position.| 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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