Correlation Between Micron Technology and NVIDIA

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

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

Diversification Opportunities for Micron Technology and NVIDIA

0.64

Correlation Coefficient

Micron Technology  NVIDIA

Poor diversification

The 3 months correlation between Micron and NVIDIA is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and Micron Technology 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 Micron Technology 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 Micron Technology i.e., Micron Technology and NVIDIA go up and down completely randomly.

Pair Corralation between Micron Technology and NVIDIA

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the NVIDIA. But the stock apears to be less risky and, when comparing its historical volatility, Micron Technology is 1.39 times less risky than NVIDIA. The stock trades about -0.15 of its potential returns per unit of risk. The NVIDIA is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  90,363  in NVIDIA on February 1, 2024 and sell it today you would lose (3,961) from holding NVIDIA or give up 4.38% of portfolio value over 90 days.

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

Micron Technology  vs.  NVIDIA

Micron Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Micron Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

NVIDIA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Micron Technology and NVIDIA

The main advantage of trading using opposite Micron Technology and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micron Technology 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 Micron Technology 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.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.