Correlation Between Broadcom and Oracle Power

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

By analyzing existing cross correlation between Broadcom and Oracle Power plc, you can compare the effects of market volatilities on Broadcom and Oracle Power 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 Oracle Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broadcom and Oracle Power.

Diversification Opportunities for Broadcom and Oracle Power

0.33

Correlation Coefficient

Broadcom  Oracle Power

Weak diversification

The 3 months correlation between Broadcom and Oracle is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Oracle Power plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oracle Power plc 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 Oracle Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oracle Power plc has no effect on the direction of Broadcom i.e., Broadcom and Oracle Power go up and down completely randomly.

Pair Corralation between Broadcom and Oracle Power

Assuming the 90 days trading horizon Broadcom is expected to generate 4.62 times less return on investment than Oracle Power. But when comparing it to its historical volatility, Broadcom is 5.59 times less risky than Oracle Power. It trades about 0.29 of its potential returns per unit of risk. Oracle Power plc is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  0.05  in Oracle Power plc on October 10, 2024 and sell it today you would earn a total of  0.05  from holding Oracle Power plc or generate 100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Broadcom  vs.  Oracle Power plc

Broadcom

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, Broadcom unveiled solid returns over the last few months and may actually be approaching a breakup point.

Oracle Power plc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle Power plc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Oracle Power unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Broadcom and Oracle Power

The main advantage of trading using opposite Broadcom and Oracle Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broadcom position performs unexpectedly, Oracle Power 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 Oracle Power will offset losses from the drop in Oracle Power's long position.

The idea behind Broadcom and Oracle Power plc 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.