Correlation Between United Airlines and NVIDIA

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

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

Diversification Opportunities for United Airlines and NVIDIA

0.87

Correlation Coefficient

United Airlines  NVIDIA

Very poor diversification

The 3 months correlation between United and NVIDIA is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding United Airlines Holdings and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and United Airlines 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 United Airlines Holdings 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 United Airlines i.e., United Airlines and NVIDIA go up and down completely randomly.

Pair Corralation between United Airlines and NVIDIA

Assuming the 90 days trading horizon United Airlines Holdings is expected to generate 1.4 times more return on investment than NVIDIA. However, United Airlines is 1.4 times more volatile than NVIDIA. It trades about 0.33 of its potential returns per unit of risk. NVIDIA is currently generating about 0.15 per unit of risk. If you would invest  101,100  in United Airlines Holdings on September 17, 2024 and sell it today you would earn a total of  91,400  from holding United Airlines Holdings or generate 90.41% return on investment over 90 days.

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

United Airlines Holdings  vs.  NVIDIA

United Airlines Holdings

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, United Airlines showed solid returns over the last few months and may actually be approaching a breakup point.

NVIDIA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 11 (%) 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.

Pair Trading with United Airlines and NVIDIA

The main advantage of trading using opposite United Airlines and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Airlines 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 United Airlines Holdings 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.