Q1.3, Report the correlation matrix between NVDA, TSM, and AMD's closing prices. Which pair of stocks are most correlated with each other?

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BlackTom AI · Accepted Answer

Turning to the task of evaluating the correlation matrix for NVDA, TSM, and AMD's closing prices, we consider what each pair represents in terms of shared movement patterns.
Option 1: NVDA and TSM. If these two stocks move in tandem, their closing prices would show a strong positive relationship across time. However, GPUs (NVDA) and foundry equipment/semiconductor supply dynamics (TSM) can be driven by different product cycles, stage of technology adoption, and regional exposures, which may temper their correlation relative to peers with more synchronized business drivers.
Option 2: TSM and AMD. Taiwan Semiconductor Manufacturing Company (TSM) and AMD often respond to common industry factors such as global semiconductor demand, supply constraints, and broad cyclical shifts in tech spending. If their businesses align on Fab utilization, foundry capacity, and exposure to the same end-market cycles (e.g., PC/CPU/GPU demand), their price movements could exhibit a notably high degree of co-movement, resulting in a stronger correlation.
Option 3: NVDA and AMD. NVIDIA (NVDA) and AMD share a common industry space as major GPU and AI accelerator players. Yet they can diverge due to product mix, customer contracts, and execution in different segments (gaming, data center, AI workloads). Such factors may lead to substantial but not necessarily the strongest correlation among all pairs, depending on timing of product launches and market driver bursts.
Across these options, the pair most likely to show the strongest historical correlation would typically be those whose business cycles and market drivers align most closely, particularly in periods of broad semiconductor demand shifts.
In summary, each pairing has plausible pathways to high correlation, but the pairing that often exhibits the tightest co-movement under shared industry dynamics is the one involving co-dependent manufacturing and supply-chain factors between the two firms (TSM and AMD), as opposed to a pair with more diversified product focuses or different regional exposures.

ISBA2401 - Data Analytics with Python (MW 05:45 PM, MW 7:35 PM, TTh 7:35PM) Homework 3 - Answer Sheet

Q1.3, Report the correlation matrix between NVDA, TSM, and AMD's closing prices. Which pair of stocks are most correlated with each other?

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