Correlation Between Broadcom and Intel

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

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

Diversification Opportunities for Broadcom and Intel

-0.41

Correlation Coefficient

Broadcom  Intel

Very good diversification

The 3 months correlation between Broadcom and Intel is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Intel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intel 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 Intel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intel has no effect on the direction of Broadcom i.e., Broadcom and Intel go up and down completely randomly.

Pair Corralation between Broadcom and Intel

Assuming the 90 days horizon Broadcom is expected to generate 1.49 times more return on investment than Intel. However, Broadcom is 1.49 times more volatile than Intel. It trades about 0.15 of its potential returns per unit of risk. Intel is currently generating about -0.04 per unit of risk. If you would invest  16,140  in Broadcom on September 23, 2024 and sell it today you would earn a total of  5,540  from holding Broadcom or generate 34.32% return on investment over 90 days.

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

Broadcom  vs.  Intel

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. Despite nearly fragile basic indicators, Broadcom reported solid returns over the last few months and may actually be approaching a breakup point.

Intel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Intel is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Broadcom and Intel

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

The idea behind Broadcom and Intel 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.