Correlation Between Alcoa Corp and VMWARE

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Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and VMWARE 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 Alcoa Corp and VMWARE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Corp and VMWARE INC, you can compare the effects of market volatilities on Alcoa Corp and VMWARE 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 Alcoa Corp with a short position of VMWARE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and VMWARE.

Diversification Opportunities for Alcoa Corp and VMWARE

-0.79
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Alcoa and VMWARE is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and VMWARE INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VMWARE INC and Alcoa Corp 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 Alcoa Corp are associated (or correlated) with VMWARE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VMWARE INC has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and VMWARE go up and down completely randomly.

Pair Corralation between Alcoa Corp and VMWARE

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 5.26 times more return on investment than VMWARE. However, Alcoa Corp is 5.26 times more volatile than VMWARE INC. It trades about 0.11 of its potential returns per unit of risk. VMWARE INC is currently generating about -0.01 per unit of risk. If you would invest  2,689  in Alcoa Corp on August 27, 2024 and sell it today you would earn a total of  1,858  from holding Alcoa Corp or generate 69.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy98.94%
ValuesDaily Returns

Alcoa Corp  vs.  VMWARE INC

 Performance 
       Timeline  
Alcoa Corp 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.
VMWARE INC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days VMWARE INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, VMWARE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Alcoa Corp and VMWARE Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alcoa Corp and VMWARE

The main advantage of trading using opposite Alcoa Corp and VMWARE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, VMWARE 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 VMWARE will offset losses from the drop in VMWARE's long position.
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The idea behind Alcoa Corp and VMWARE INC 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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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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