Correlation Between VMware and Alcoa Corp

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

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

Diversification Opportunities for VMware and Alcoa Corp

-0.75

Correlation Coefficient

VMware  Alcoa Corp

Pay attention - limited upside

The 3 months correlation between VMware and Alcoa is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding VMware Inc and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and VMware 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 VMware Inc are associated (or correlated) with Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of VMware i.e., VMware and Alcoa Corp go up and down completely randomly.

Pair Corralation between VMware and Alcoa Corp

If you would invest  3,135  in Alcoa Corp on January 20, 2024 and sell it today you would earn a total of  418.00  from holding Alcoa Corp or generate 13.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	4.55%
Values	Daily Returns

VMware Inc  vs.  Alcoa Corp

VMware Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VMware Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable primary indicators, VMware is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Alcoa Corp

Risk-Adjusted Performance

11 of 100

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 weak basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VMware and Alcoa Corp

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

The idea behind VMware Inc and Alcoa Corp 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.