Correlation Between Apple and Broadcom
Can any of the company-specific risk be diversified away by investing in both Apple and Broadcom 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 Apple and Broadcom into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc and Broadcom, you can compare the effects of market volatilities on Apple and Broadcom 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 Apple with a short position of Broadcom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Broadcom.
Diversification Opportunities for Apple and Broadcom
Poor diversification
The 3 months correlation between Apple and Broadcom is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and Apple 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 Apple Inc are associated (or correlated) with Broadcom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadcom has no effect on the direction of Apple i.e., Apple and Broadcom go up and down completely randomly.
Pair Corralation between Apple and Broadcom
Assuming the 90 days trading horizon Apple is expected to generate 2.78 times less return on investment than Broadcom. But when comparing it to its historical volatility, Apple Inc is 1.82 times less risky than Broadcom. It trades about 0.06 of its potential returns per unit of risk. Broadcom is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 7,259 in Broadcom on August 27, 2024 and sell it today you would earn a total of 8,475 from holding Broadcom or generate 116.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Apple Inc vs. Broadcom
Performance |
| Timeline |
| Apple Inc |
| Broadcom |
Apple and Broadcom Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Apple and Broadcom
The main advantage of trading using opposite Apple and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple position performs unexpectedly, Broadcom 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 Broadcom will offset losses from the drop in Broadcom's long position.| Apple vs. FAST RETAIL ADR | Apple vs. MCEWEN MINING INC | Apple vs. Playtech plc | Apple vs. Caseys General Stores |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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