Correlation Between NVIDIA and Armada Mercantile

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

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

Diversification Opportunities for NVIDIA and Armada Mercantile

-0.71

Correlation Coefficient

NVIDIA  Armada Mercantile

Pay attention - limited upside

The 3 months correlation between NVIDIA and Armada is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Armada Mercantile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armada Mercantile 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 Armada Mercantile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armada Mercantile has no effect on the direction of NVIDIA i.e., NVIDIA and Armada Mercantile go up and down completely randomly.

Pair Corralation between NVIDIA and Armada Mercantile

Given the investment horizon of 90 days NVIDIA is expected to generate 0.65 times more return on investment than Armada Mercantile. However, NVIDIA is 1.53 times less risky than Armada Mercantile. It trades about 0.1 of its potential returns per unit of risk. Armada Mercantile is currently generating about -0.05 per unit of risk. If you would invest  11,758  in NVIDIA on August 29, 2024 and sell it today you would earn a total of  1,934  from holding NVIDIA or generate 16.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

NVIDIA  vs.  Armada Mercantile

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.

Armada Mercantile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Armada Mercantile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NVIDIA and Armada Mercantile

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

The idea behind NVIDIA and Armada Mercantile 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.