Correlation Between NVIDIA and First Trust
Can any of the company-specific risk be diversified away by investing in both NVIDIA and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NVIDIA and First Trust Small, you can compare the effects of market volatilities on NVIDIA and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVIDIA and First Trust.
Diversification Opportunities for NVIDIA and First Trust
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between NVIDIA and First is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and First Trust Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Small 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Small has no effect on the direction of NVIDIA i.e., NVIDIA and First Trust go up and down completely randomly.
Pair Corralation between NVIDIA and First Trust
Given the investment horizon of 90 days NVIDIA is expected to under-perform the First Trust. In addition to that, NVIDIA is 1.44 times more volatile than First Trust Small. It trades about -0.05 of its total potential returns per unit of risk. First Trust Small is currently generating about 0.28 per unit of volatility. If you would invest 9,996 in First Trust Small on August 27, 2024 and sell it today you would earn a total of 1,057 from holding First Trust Small or generate 10.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NVIDIA vs. First Trust Small
Performance |
| Timeline |
| NVIDIA |
| First Trust Small |
NVIDIA and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NVIDIA and First Trust
The main advantage of trading using opposite NVIDIA and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| NVIDIA vs. Intel | NVIDIA vs. Taiwan Semiconductor Manufacturing | NVIDIA vs. Marvell Technology Group | NVIDIA vs. Micron Technology |
| First Trust vs. First Trust Mid | First Trust vs. First Trust Large | First Trust vs. First Trust Large | First Trust vs. First Trust Large |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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