Correlation Between NVIDIA and X Fab

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

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

Diversification Opportunities for NVIDIA and X Fab

-0.58

Correlation Coefficient

NVIDIA  X Fab

Excellent diversification

The 3 months correlation between NVIDIA and XFB is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and X Fab Silicon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X Fab Silicon 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 X Fab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X Fab Silicon has no effect on the direction of NVIDIA i.e., NVIDIA and X Fab go up and down completely randomly.

Pair Corralation between NVIDIA and X Fab

Assuming the 90 days horizon NVIDIA is expected to generate 0.95 times more return on investment than X Fab. However, NVIDIA is 1.05 times less risky than X Fab. It trades about 0.19 of its potential returns per unit of risk. X Fab Silicon is currently generating about -0.12 per unit of risk. If you would invest  9,787  in NVIDIA on September 3, 2024 and sell it today you would earn a total of  3,261  from holding NVIDIA or generate 33.32% return on investment over 90 days.

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

NVIDIA  vs.  X Fab Silicon

NVIDIA

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 14 (%) 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.

X Fab Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X Fab Silicon has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NVIDIA and X Fab

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

The idea behind NVIDIA and X Fab Silicon 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.