Correlation Between NVIDIA and Northern Oil
Can any of the company-specific risk be diversified away by investing in both NVIDIA and Northern Oil 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 Northern Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NVIDIA and Northern Oil Gas, you can compare the effects of market volatilities on NVIDIA and Northern Oil 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 Northern Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVIDIA and Northern Oil.
Diversification Opportunities for NVIDIA and Northern Oil
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between NVIDIA and Northern is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Northern Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Oil Gas 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 Northern Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Oil Gas has no effect on the direction of NVIDIA i.e., NVIDIA and Northern Oil go up and down completely randomly.
Pair Corralation between NVIDIA and Northern Oil
Given the investment horizon of 90 days NVIDIA is expected to under-perform the Northern Oil. But the stock apears to be less risky and, when comparing its historical volatility, NVIDIA is 1.06 times less risky than Northern Oil. The stock trades about -0.03 of its potential returns per unit of risk. The Northern Oil Gas is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 3,655 in Northern Oil Gas on August 28, 2024 and sell it today you would earn a total of 658.00 from holding Northern Oil Gas or generate 18.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NVIDIA vs. Northern Oil Gas
Performance |
| Timeline |
| NVIDIA |
| Northern Oil Gas |
NVIDIA and Northern Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NVIDIA and Northern Oil
The main advantage of trading using opposite NVIDIA and Northern Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA position performs unexpectedly, Northern Oil 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 Northern Oil will offset losses from the drop in Northern Oil's long position.| NVIDIA vs. Intel | NVIDIA vs. Taiwan Semiconductor Manufacturing | NVIDIA vs. Marvell Technology Group | NVIDIA vs. Micron Technology |
| Northern Oil vs. ConocoPhillips | Northern Oil vs. Occidental Petroleum | Northern Oil vs. EOG Resources | Northern Oil vs. Coterra Energy |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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