Correlation Between Iron Road and Broadcom

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

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

Diversification Opportunities for Iron Road and Broadcom

-0.58

Correlation Coefficient

Iron Road  Broadcom

Excellent diversification

The 3 months correlation between Iron and Broadcom is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road Limited and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and Iron Road 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 Iron Road Limited 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 Iron Road i.e., Iron Road and Broadcom go up and down completely randomly.

Pair Corralation between Iron Road and Broadcom

Assuming the 90 days horizon Iron Road Limited is expected to generate 6.23 times more return on investment than Broadcom. However, Iron Road is 6.23 times more volatile than Broadcom. It trades about 0.06 of its potential returns per unit of risk. Broadcom is currently generating about 0.12 per unit of risk. If you would invest  4.60  in Iron Road Limited on October 4, 2024 and sell it today you would lose (2.25) from holding Iron Road Limited or give up 48.91% of portfolio value over 90 days.

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

Iron Road Limited  vs.  Broadcom

Iron Road Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Road Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Broadcom

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 12 (%) 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.

Pair Trading with Iron Road and Broadcom

The main advantage of trading using opposite Iron Road and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iron Road 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 Iron Road Limited 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.