Correlation Between VMware and Incyte

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

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

Diversification Opportunities for VMware and Incyte

0.73

Correlation Coefficient

VMware  Incyte

Poor diversification

The 3 months correlation between VMware and Incyte is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding VMware Inc and Incyte in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Incyte 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 Incyte. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Incyte has no effect on the direction of VMware i.e., VMware and Incyte go up and down completely randomly.

Pair Corralation between VMware and Incyte

Considering the 90-day investment horizon VMware Inc is expected to generate 1.21 times more return on investment than Incyte. However, VMware is 1.21 times more volatile than Incyte. It trades about 0.05 of its potential returns per unit of risk. Incyte is currently generating about -0.09 per unit of risk. If you would invest  12,698  in VMware Inc on January 26, 2024 and sell it today you would earn a total of  1,550  from holding VMware Inc or generate 12.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	58.06%
Values	Daily Returns

VMware Inc  vs.  Incyte

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.

Incyte

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Incyte has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with VMware and Incyte

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

The idea behind VMware Inc and Incyte 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.