Correlation Between Arm Holdings and Broadcom

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

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

Diversification Opportunities for Arm Holdings and Broadcom

-0.26

Correlation Coefficient

Arm Holdings  Broadcom

Very good diversification

The 3 months correlation between Arm and Broadcom is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and Arm Holdings 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 Arm Holdings plc 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 Arm Holdings i.e., Arm Holdings and Broadcom go up and down completely randomly.

Pair Corralation between Arm Holdings and Broadcom

Considering the 90-day investment horizon Arm Holdings is expected to generate 10.12 times less return on investment than Broadcom. But when comparing it to its historical volatility, Arm Holdings plc is 1.25 times less risky than Broadcom. It trades about 0.02 of its potential returns per unit of risk. Broadcom is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  17,461  in Broadcom on October 7, 2024 and sell it today you would earn a total of  5,794  from holding Broadcom or generate 33.18% return on investment over 90 days.

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

Arm Holdings plc  vs.  Broadcom

Arm Holdings plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arm Holdings plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Arm Holdings is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

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 very unsteady technical and fundamental indicators, Broadcom displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arm Holdings and Broadcom

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

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.