Correlation Between National Retail and Broadcom
Can any of the company-specific risk be diversified away by investing in both National Retail 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 National Retail and Broadcom into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Retail Properties and Broadcom, you can compare the effects of market volatilities on National Retail 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 National Retail with a short position of Broadcom. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Retail and Broadcom.
Diversification Opportunities for National Retail and Broadcom
-0.12 | Correlation Coefficient |
Good diversification
The 3 months correlation between National and Broadcom is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding National Retail Properties and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and National Retail 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 National Retail Properties 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 National Retail i.e., National Retail and Broadcom go up and down completely randomly.
Pair Corralation between National Retail and Broadcom
Assuming the 90 days trading horizon National Retail is expected to generate 2.45 times less return on investment than Broadcom. But when comparing it to its historical volatility, National Retail Properties is 2.33 times less risky than Broadcom. It trades about 0.07 of its potential returns per unit of risk. Broadcom is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 11,957 in Broadcom on August 31, 2024 and sell it today you would earn a total of 3,313 from holding Broadcom or generate 27.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Retail Properties vs. Broadcom
Performance |
| Timeline |
| National Retail Prop |
| Broadcom |
National Retail and Broadcom Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Retail and Broadcom
The main advantage of trading using opposite National Retail and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Retail 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.| National Retail vs. Apple Inc | National Retail vs. Apple Inc | National Retail vs. Apple Inc | National Retail vs. Apple Inc |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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