Correlation Between VMware and Microsoft
Can any of the company-specific risk be diversified away by investing in both VMware and Microsoft 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 Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between VMware Inc and Microsoft, you can compare the effects of market volatilities on VMware and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of VMware and Microsoft.
Diversification Opportunities for VMware and Microsoft
Excellent diversification
The 3 months correlation between VMware and Microsoft is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding VMware Inc and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of VMware i.e., VMware and Microsoft go up and down completely randomly.
Pair Corralation between VMware and Microsoft
If you would invest 14,248 in VMware Inc on January 19, 2024 and sell it today you would earn a total of 0.00 from holding VMware Inc or generate 0.0% 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. Microsoft
Performance |
| Timeline |
| VMware Inc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Microsoft |
VMware and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with VMware and Microsoft
The main advantage of trading using opposite VMware and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VMware position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.The idea behind VMware Inc and Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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