Correlation Between Broadcom and QBE Insurance

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

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

Diversification Opportunities for Broadcom and QBE Insurance

0.2

Correlation Coefficient

Broadcom  QBE Insurance

Modest diversification

The 3 months correlation between Broadcom and QBE is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and QBE Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QBE Insurance Group 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 QBE Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QBE Insurance Group has no effect on the direction of Broadcom i.e., Broadcom and QBE Insurance go up and down completely randomly.

Pair Corralation between Broadcom and QBE Insurance

Assuming the 90 days trading horizon Broadcom is expected to generate 4.91 times more return on investment than QBE Insurance. However, Broadcom is 4.91 times more volatile than QBE Insurance Group. It trades about 0.29 of its potential returns per unit of risk. QBE Insurance Group is currently generating about 0.01 per unit of risk. If you would invest  16,695  in Broadcom on October 10, 2024 and sell it today you would earn a total of  5,645  from holding Broadcom or generate 33.81% 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.  QBE Insurance Group

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.

QBE Insurance Group

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in QBE Insurance Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, QBE Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Broadcom and QBE Insurance

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

The idea behind Broadcom and QBE Insurance Group 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.

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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.