Correlation Between VMware and IAC

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

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

Diversification Opportunities for VMware and IAC

0.35

Correlation Coefficient

VMware  IAC

Weak diversification

The 3 months correlation between VMware and IAC is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding VMware Inc and IAC Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IAC Inc 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 IAC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IAC Inc has no effect on the direction of VMware i.e., VMware and IAC go up and down completely randomly.

Pair Corralation between VMware and IAC

Considering the 90-day investment horizon VMware Inc is expected to generate 0.77 times more return on investment than IAC. However, VMware Inc is 1.29 times less risky than IAC. It trades about 0.05 of its potential returns per unit of risk. IAC Inc is currently generating about -0.02 per unit of risk. If you would invest  10,063  in VMware Inc on January 26, 2024 and sell it today you would earn a total of  4,185  from holding VMware Inc or generate 41.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	78.95%
Values	Daily Returns

VMware Inc  vs.  IAC Inc

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.

IAC Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IAC Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IAC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with VMware and IAC

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

The idea behind VMware Inc and IAC 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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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 Anywhere module to track or share privately all of your investments from the convenience of any device.