Correlation Between Broadcom and NETGEAR
Can any of the company-specific risk be diversified away by investing in both Broadcom and NETGEAR 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 NETGEAR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Broadcom and NETGEAR, you can compare the effects of market volatilities on Broadcom and NETGEAR 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 NETGEAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broadcom and NETGEAR.
Diversification Opportunities for Broadcom and NETGEAR
Very poor diversification
The 3 months correlation between Broadcom and NETGEAR is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR 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 NETGEAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NETGEAR has no effect on the direction of Broadcom i.e., Broadcom and NETGEAR go up and down completely randomly.
Pair Corralation between Broadcom and NETGEAR
Given the investment horizon of 90 days Broadcom is expected to under-perform the NETGEAR. In addition to that, Broadcom is 1.22 times more volatile than NETGEAR. It trades about -0.13 of its total potential returns per unit of risk. NETGEAR is currently generating about -0.01 per unit of volatility. If you would invest 2,487 in NETGEAR on December 31, 2024 and sell it today you would lose (41.00) from holding NETGEAR or give up 1.65% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Broadcom vs. NETGEAR
Performance |
| Timeline |
| Broadcom |
| NETGEAR |
Broadcom and NETGEAR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Broadcom and NETGEAR
The main advantage of trading using opposite Broadcom and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broadcom position performs unexpectedly, NETGEAR 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 NETGEAR will offset losses from the drop in NETGEAR's long position.| Broadcom vs. Advanced Micro Devices | ||
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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