Correlation Between NVIDIA and APA

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

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

Diversification Opportunities for NVIDIA and APA

-0.61

Correlation Coefficient

NVIDIA  APA

Excellent diversification

The 3 months correlation between NVIDIA and APA is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and APA Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on APA Group 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 APA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of APA Group has no effect on the direction of NVIDIA i.e., NVIDIA and APA go up and down completely randomly.

Pair Corralation between NVIDIA and APA

Given the investment horizon of 90 days NVIDIA is expected to generate 0.8 times more return on investment than APA. However, NVIDIA is 1.25 times less risky than APA. It trades about 0.12 of its potential returns per unit of risk. APA Group is currently generating about 0.0 per unit of risk. If you would invest  4,550  in NVIDIA on September 12, 2024 and sell it today you would earn a total of  8,957  from holding NVIDIA or generate 196.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	91.48%
Values	Daily Returns

NVIDIA  vs.  APA Group

NVIDIA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 7 (%) 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.

APA Group

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days APA Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, APA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NVIDIA and APA

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

The idea behind NVIDIA and APA Group 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.