Correlation Between NVIDIA and Colgate Palmolive

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

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

Diversification Opportunities for NVIDIA and Colgate Palmolive

-0.76

Correlation Coefficient

NVIDIA  Colgate Palmolive

Pay attention - limited upside

The 3 months correlation between NVIDIA and Colgate is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive 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 Colgate Palmolive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colgate Palmolive has no effect on the direction of NVIDIA i.e., NVIDIA and Colgate Palmolive go up and down completely randomly.

Pair Corralation between NVIDIA and Colgate Palmolive

Assuming the 90 days trading horizon NVIDIA is expected to generate 1.68 times more return on investment than Colgate Palmolive. However, NVIDIA is 1.68 times more volatile than Colgate Palmolive. It trades about 0.14 of its potential returns per unit of risk. Colgate Palmolive is currently generating about -0.11 per unit of risk. If you would invest  237,361  in NVIDIA on September 28, 2024 and sell it today you would earn a total of  45,845  from holding NVIDIA or generate 19.31% return on investment over 90 days.

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

NVIDIA  vs.  Colgate Palmolive

NVIDIA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, NVIDIA showed solid returns over the last few months and may actually be approaching a breakup point.

Colgate Palmolive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Colgate Palmolive has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with NVIDIA and Colgate Palmolive

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

The idea behind NVIDIA and Colgate Palmolive 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.