Correlation Between Daqo New and NVIDIA

Can any of the company-specific risk be diversified away by investing in both Daqo New 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 Daqo New and NVIDIA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Daqo New Energy and NVIDIA, you can compare the effects of market volatilities on Daqo New 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 Daqo New with a short position of NVIDIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daqo New and NVIDIA.

Diversification Opportunities for Daqo New and NVIDIA

0.25

Correlation Coefficient

Daqo New  NVIDIA

Modest diversification

The 3 months correlation between Daqo and NVIDIA is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Daqo New Energy and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Daqo New 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 Daqo New Energy 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 Daqo New i.e., Daqo New and NVIDIA go up and down completely randomly.

Pair Corralation between Daqo New and NVIDIA

Allowing for the 90-day total investment horizon Daqo New Energy is expected to under-perform the NVIDIA. In addition to that, Daqo New is 2.04 times more volatile than NVIDIA. It trades about -0.06 of its total potential returns per unit of risk. NVIDIA is currently generating about -0.11 per unit of volatility. If you would invest  14,194  in NVIDIA on September 23, 2024 and sell it today you would lose (724.00) from holding NVIDIA or give up 5.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Daqo New Energy  vs.  NVIDIA

Daqo New Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Daqo New Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Daqo New reported solid returns over the last few months and may actually be approaching a breakup point.

NVIDIA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daqo New and NVIDIA

The main advantage of trading using opposite Daqo New and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daqo New 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.

The idea behind Daqo New Energy and NVIDIA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.