Correlation Between Southern and VMware

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

Diversification Opportunities for Southern and VMware

0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between Southern and VMware is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and VMware Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VMware Inc and Southern 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 Southern Company 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 Southern i.e., Southern and VMware go up and down completely randomly.

Pair Corralation between Southern and VMware

Allowing for the 90-day total investment horizon Southern Company is expected to under-perform the VMware. In addition to that, Southern is 1.27 times more volatile than VMware Inc. It trades about -0.02 of its total potential returns per unit of risk. VMware Inc is currently generating about 0.2 per unit of volatility. If you would invest  10,856  in VMware Inc on September 1, 2022 and sell it today you would earn a total of  1,293  from holding VMware Inc or generate 11.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Southern Company  vs.  VMware Inc

 Performance (%) 
       Timeline  
Southern 
Southern Performance
0 of 100
Over the last 90 days Southern Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in December 2022. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Southern Price Channel

VMware Inc 
VMware Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in VMware Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable primary indicators, VMware is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

VMware Price Channel

Southern and VMware Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Southern and VMware

The main advantage of trading using opposite Southern and VMware positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern 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 Southern Company 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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