Correlation Between ASE Industrial and Broadcom

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

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

Diversification Opportunities for ASE Industrial and Broadcom

0.62

Correlation Coefficient

ASE Industrial  Broadcom

Poor diversification

The 3 months correlation between ASE and Broadcom is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding ASE Industrial Holding and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and ASE Industrial 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 ASE Industrial Holding 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 ASE Industrial i.e., ASE Industrial and Broadcom go up and down completely randomly.

Pair Corralation between ASE Industrial and Broadcom

Considering the 90-day investment horizon ASE Industrial Holding is expected to generate 0.72 times more return on investment than Broadcom. However, ASE Industrial Holding is 1.39 times less risky than Broadcom. It trades about -0.02 of its potential returns per unit of risk. Broadcom is currently generating about -0.09 per unit of risk. If you would invest  1,038  in ASE Industrial Holding on December 25, 2024 and sell it today you would lose (50.00) from holding ASE Industrial Holding or give up 4.82% of portfolio value over 90 days.

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

ASE Industrial Holding  vs.  Broadcom

ASE Industrial Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days ASE Industrial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, ASE Industrial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Broadcom

Risk-Adjusted Performance

Very Weak

Over the last 90 days Broadcom has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with ASE Industrial and Broadcom

The main advantage of trading using opposite ASE Industrial and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ASE Industrial 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 ASE Industrial Holding 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.