Correlation Between VMware and Nestle SA
Can any of the company-specific risk be diversified away by investing in both VMware and Nestle SA 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 Nestle SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between VMware Inc and Nestle SA, you can compare the effects of market volatilities on VMware and Nestle SA 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 Nestle SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of VMware and Nestle SA.
Diversification Opportunities for VMware and Nestle SA
Very weak diversification
The 3 months correlation between VMware and Nestle is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding VMware Inc and Nestle SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle SA 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 Nestle SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle SA has no effect on the direction of VMware i.e., VMware and Nestle SA go up and down completely randomly.
Pair Corralation between VMware and Nestle SA
Considering the 90-day investment horizon VMware Inc is expected to under-perform the Nestle SA. In addition to that, VMware is 1.74 times more volatile than Nestle SA. It trades about -0.06 of its total potential returns per unit of risk. Nestle SA is currently generating about -0.07 per unit of volatility. If you would invest 12,031 in Nestle SA on January 20, 2024 and sell it today you would lose (1,810) from holding Nestle SA or give up 15.04% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 46.28% |
| Values | Daily Returns |
VMware Inc vs. Nestle SA
Performance |
| Timeline |
| VMware Inc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Nestle SA |
VMware and Nestle SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with VMware and Nestle SA
The main advantage of trading using opposite VMware and Nestle SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VMware position performs unexpectedly, Nestle SA 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 Nestle SA will offset losses from the drop in Nestle SA's long position.The idea behind VMware Inc and Nestle SA 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.| Nestle SA vs. Kellanova | Nestle SA vs. Lancaster Colony | Nestle SA vs. The A2 Milk | Nestle SA vs. Artisan Consumer Goods |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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