Correlation Between Broadcom and Micron Technology
Can any of the company-specific risk be diversified away by investing in both Broadcom and Micron Technology 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 Micron Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Broadcom and Micron Technology, you can compare the effects of market volatilities on Broadcom and Micron Technology 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 Micron Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broadcom and Micron Technology.
Diversification Opportunities for Broadcom and Micron Technology
-0.43 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Broadcom and Micron is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology 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 Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of Broadcom i.e., Broadcom and Micron Technology go up and down completely randomly.
Pair Corralation between Broadcom and Micron Technology
Given the investment horizon of 90 days Broadcom is expected to generate 2.27 times less return on investment than Micron Technology. But when comparing it to its historical volatility, Broadcom is 1.59 times less risky than Micron Technology. It trades about 0.21 of its potential returns per unit of risk. Micron Technology is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 8,698 in Micron Technology on October 20, 2024 and sell it today you would earn a total of 1,877 from holding Micron Technology or generate 21.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Broadcom vs. Micron Technology
Performance |
| Timeline |
| Broadcom |
| Micron Technology |
Broadcom and Micron Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Broadcom and Micron Technology
The main advantage of trading using opposite Broadcom and Micron Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broadcom position performs unexpectedly, Micron Technology 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 Micron Technology will offset losses from the drop in Micron Technology's long position.| Broadcom vs. Advanced Micro Devices | Broadcom vs. Micron Technology | Broadcom vs. Intel | Broadcom vs. Taiwan Semiconductor Manufacturing |
| Micron Technology vs. NVIDIA | Micron Technology vs. Intel | Micron Technology vs. Taiwan Semiconductor Manufacturing | Micron Technology vs. Marvell Technology Group |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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