Nvidia has strong correlation with short interest, S3 offers insights
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NVIDIA HAS STRONG CORRELATION WITH SHORT INTEREST, S3 OFFERS INSIGHTS
Among the biggest stocks in the market, Nvidia NVDA.O is exhibiting the strongest correlation between monthly returns and changes in short positions, according to an S3 Research Team.
"For tech stocks, this correlation is positive, meaning that short positions increase during uptrends and decrease during downtrends. This reflects a reversal or profit-taking strategy, where short investors sell as prices rise and short as prices fall," write the S3 analysts in a note.
The analysts note that the correlation for NVDA is significantly greater than that of the other stocks.
Looking at their data, the S3 team says that financials are positively correlated, while cyclical stocks exhibit a negative correlation, "indicating that investors buy on the way up and sell on the way down."
However, they notice that the VanEck semiconductor ETF SMH.O demonstrates a weak relationship, suggesting to them that the NVDA phenomenon is not sector dependent.
This leads them to say that "NVDA is positively correlated with itself, indicating that the reversal strategy does not apply."
Therefore, the S3 Team believes investors are using NVDA as a hedge for the market and the tech sector overall, which is causing this correlation, and it's not a profitable strategy in itself.
(Terence Gabriel)
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