Correlation Between Broadcom and Lam Research
Can any of the company-specific risk be diversified away by investing in both Broadcom and Lam Research 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 Broadcom and Lam Research into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Broadcom and Lam Research, you can compare the effects of market volatilities on Broadcom and Lam Research 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 Broadcom with a short position of Lam Research. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broadcom and Lam Research.
Diversification Opportunities for Broadcom and Lam Research
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Broadcom and Lam is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Lam Research in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lam Research and Broadcom 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 Broadcom are associated (or correlated) with Lam Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lam Research has no effect on the direction of Broadcom i.e., Broadcom and Lam Research go up and down completely randomly.
Pair Corralation between Broadcom and Lam Research
Assuming the 90 days trading horizon Broadcom is expected to generate 1.12 times more return on investment than Lam Research. However, Broadcom is 1.12 times more volatile than Lam Research. It trades about 0.09 of its potential returns per unit of risk. Lam Research is currently generating about 0.04 per unit of risk. If you would invest 7,225 in Broadcom on August 31, 2024 and sell it today you would earn a total of 8,045 from holding Broadcom or generate 111.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.74% |
| Values | Daily Returns |
Broadcom vs. Lam Research
Performance |
| Timeline |
| Broadcom |
| Lam Research |
Broadcom and Lam Research Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Broadcom and Lam Research
The main advantage of trading using opposite Broadcom and Lam Research positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broadcom position performs unexpectedly, Lam Research 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 Lam Research will offset losses from the drop in Lam Research's long position.The idea behind Broadcom and Lam Research 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.| Lam Research vs. ASML Holding NV | Lam Research vs. Superior Plus Corp | Lam Research vs. NMI Holdings | Lam Research vs. Origin Agritech |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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