Correlation Between Nvidia CDR and Microsoft CDR

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

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

Diversification Opportunities for Nvidia CDR and Microsoft CDR

0.96

Correlation Coefficient

Nvidia CDR  Microsoft CDR

Almost no diversification

The 3 months correlation between Nvidia and Microsoft is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Nvidia CDR and Microsoft CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft CDR and Nvidia CDR 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 CDR are associated (or correlated) with Microsoft CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft CDR has no effect on the direction of Nvidia CDR i.e., Nvidia CDR and Microsoft CDR go up and down completely randomly.

Pair Corralation between Nvidia CDR and Microsoft CDR

Assuming the 90 days trading horizon Nvidia CDR is expected to generate 1.31 times more return on investment than Microsoft CDR. However, Nvidia CDR is 1.31 times more volatile than Microsoft CDR. It trades about 0.5 of its potential returns per unit of risk. Microsoft CDR is currently generating about 0.4 per unit of risk. If you would invest  2,239  in Nvidia CDR on April 20, 2025 and sell it today you would earn a total of  1,719  from holding Nvidia CDR or generate 76.78% return on investment over 90 days.

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

Nvidia CDR  vs.  Microsoft CDR

Nvidia CDR

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Nvidia CDR are ranked lower than 39 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Nvidia CDR displayed solid returns over the last few months and may actually be approaching a breakup point.

Microsoft CDR

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft CDR are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Microsoft CDR displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nvidia CDR and Microsoft CDR

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

The idea behind Nvidia CDR and Microsoft CDR 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.