Correlation Between Raytheon Technologies and NVIDIA

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

By analyzing existing cross correlation between Raytheon Technologies and NVIDIA, you can compare the effects of market volatilities on Raytheon Technologies and NVIDIA 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 Raytheon Technologies with a short position of NVIDIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Raytheon Technologies and NVIDIA.

Diversification Opportunities for Raytheon Technologies and NVIDIA

0.82

Correlation Coefficient

Raytheon Technologies  NVIDIA

Very poor diversification

The 3 months correlation between Raytheon and NVIDIA is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Raytheon Technologies 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 Raytheon Technologies are associated (or correlated) with NVIDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA has no effect on the direction of Raytheon Technologies i.e., Raytheon Technologies and NVIDIA go up and down completely randomly.

Pair Corralation between Raytheon Technologies and NVIDIA

Assuming the 90 days trading horizon Raytheon Technologies is expected to generate 3.75 times less return on investment than NVIDIA. But when comparing it to its historical volatility, Raytheon Technologies is 1.68 times less risky than NVIDIA. It trades about 0.08 of its potential returns per unit of risk. NVIDIA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,335  in NVIDIA on September 14, 2024 and sell it today you would earn a total of  374.00  from holding NVIDIA or generate 28.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Raytheon Technologies  vs.  NVIDIA

Raytheon Technologies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Raytheon Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NVIDIA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Raytheon Technologies and NVIDIA

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

The idea behind Raytheon Technologies and NVIDIA 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.