Correlation Between NVIDIA and Amazon

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

By analyzing existing cross correlation between NVIDIA and Amazon Inc, you can compare the effects of market volatilities on NVIDIA and Amazon 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 Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVIDIA and Amazon.

Diversification Opportunities for NVIDIA and Amazon

0.84

Correlation Coefficient

NVIDIA  Amazon

Very poor diversification

The 3 months correlation between NVIDIA and Amazon is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of NVIDIA i.e., NVIDIA and Amazon go up and down completely randomly.

Pair Corralation between NVIDIA and Amazon

Assuming the 90 days horizon NVIDIA is expected to generate 1.51 times more return on investment than Amazon. However, NVIDIA is 1.51 times more volatile than Amazon Inc. It trades about 0.2 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.22 per unit of risk. If you would invest  9,641  in NVIDIA on September 4, 2024 and sell it today you would earn a total of  3,407  from holding NVIDIA or generate 35.34% return on investment over 90 days.

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

NVIDIA  vs.  Amazon Inc

NVIDIA

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NVIDIA reported solid returns over the last few months and may actually be approaching a breakup point.

Amazon Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Amazon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NVIDIA and Amazon

The main advantage of trading using opposite NVIDIA and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.

The idea behind NVIDIA and Amazon Inc 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.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.