Correlation Between Take Two and Broadcom

Can any of the company-specific risk be diversified away by investing in both Take Two 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 Take Two and Broadcom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Take Two Interactive Software and Broadcom, you can compare the effects of market volatilities on Take Two 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 Take Two with a short position of Broadcom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Take Two and Broadcom.

Diversification Opportunities for Take Two and Broadcom

0.25

Correlation Coefficient

Take Two  Broadcom

Modest diversification

The 3 months correlation between Take and Broadcom is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Take Two Interactive Software and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and Take Two 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 Take Two Interactive Software 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 Take Two i.e., Take Two and Broadcom go up and down completely randomly.

Pair Corralation between Take Two and Broadcom

Assuming the 90 days trading horizon Take Two is expected to generate 85.49 times less return on investment than Broadcom. But when comparing it to its historical volatility, Take Two Interactive Software is 60.14 times less risky than Broadcom. It trades about 0.07 of its potential returns per unit of risk. Broadcom is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,471  in Broadcom on October 11, 2024 and sell it today you would earn a total of  17,476  from holding Broadcom or generate 319.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.0%
Values	Daily Returns

Take Two Interactive Software  vs.  Broadcom

Take Two Interactive

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Take Two Interactive Software are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Take Two unveiled solid returns over the last few months and may actually be approaching a breakup point.

Broadcom

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Broadcom unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Take Two and Broadcom

The main advantage of trading using opposite Take Two and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Take Two 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.

The idea behind Take Two Interactive Software and Broadcom 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.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.