Correlation Between Verizon Communications and NVIDIA

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

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

Diversification Opportunities for Verizon Communications and NVIDIA

0.04

Correlation Coefficient

Verizon Communications  NVIDIA

Significant diversification

The 3 months correlation between Verizon and NVIDIA is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Verizon Communications 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 Verizon Communications 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 Verizon Communications i.e., Verizon Communications and NVIDIA go up and down completely randomly.

Pair Corralation between Verizon Communications and NVIDIA

Assuming the 90 days horizon Verizon Communications is expected to under-perform the NVIDIA. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 1.09 times less risky than NVIDIA. The stock trades about 0.0 of its potential returns per unit of risk. The NVIDIA is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  226,088  in NVIDIA on September 20, 2024 and sell it today you would earn a total of  38,330  from holding NVIDIA or generate 16.95% return on investment over 90 days.

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

Verizon Communications  vs.  NVIDIA

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Verizon Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NVIDIA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 9 (%) 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 Verizon Communications and NVIDIA

The main advantage of trading using opposite Verizon Communications and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications 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 Verizon Communications 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.