Correlation Between NVIDIA and Gilead Sciences

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

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

Diversification Opportunities for NVIDIA and Gilead Sciences

0.83

Correlation Coefficient

NVIDIA  Gilead Sciences

Very poor diversification

The 3 months correlation between NVIDIA and Gilead is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences 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 Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of NVIDIA i.e., NVIDIA and Gilead Sciences go up and down completely randomly.

Pair Corralation between NVIDIA and Gilead Sciences

Given the investment horizon of 90 days NVIDIA is expected to generate 2.04 times more return on investment than Gilead Sciences. However, NVIDIA is 2.04 times more volatile than Gilead Sciences. It trades about 0.12 of its potential returns per unit of risk. Gilead Sciences is currently generating about 0.04 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 Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

NVIDIA  vs.  Gilead Sciences

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.

Gilead Sciences

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Gilead Sciences may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NVIDIA and Gilead Sciences

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

The idea behind NVIDIA and Gilead Sciences 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.