Correlation Between Broadcom and Emera

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

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

Diversification Opportunities for Broadcom and Emera

-0.15

Correlation Coefficient

Broadcom  Emera

Good diversification

The 3 months correlation between Broadcom and Emera is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Emera Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emera Inc 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 Emera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emera Inc has no effect on the direction of Broadcom i.e., Broadcom and Emera go up and down completely randomly.

Pair Corralation between Broadcom and Emera

Assuming the 90 days trading horizon Broadcom is expected to generate 1.8 times more return on investment than Emera. However, Broadcom is 1.8 times more volatile than Emera Inc. It trades about 0.08 of its potential returns per unit of risk. Emera Inc is currently generating about 0.05 per unit of risk. If you would invest  3,997  in Broadcom on September 13, 2024 and sell it today you would earn a total of  384.00  from holding Broadcom or generate 9.61% return on investment over 90 days.

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

Broadcom  vs.  Emera Inc

Broadcom

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Broadcom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Emera Inc

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Emera Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Emera is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Broadcom and Emera

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

The idea behind Broadcom and Emera Inc 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.