Correlation Between Broadcom and Imperial Oil

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Can any of the company-specific risk be diversified away by investing in both Broadcom and Imperial Oil 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 Imperial Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Broadcom and Imperial Oil, you can compare the effects of market volatilities on Broadcom and Imperial Oil 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 Imperial Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broadcom and Imperial Oil.

Diversification Opportunities for Broadcom and Imperial Oil

BroadcomImperialDiversified AwayBroadcomImperialDiversified Away100%
-0.69
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Broadcom and Imperial is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil 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 Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil has no effect on the direction of Broadcom i.e., Broadcom and Imperial Oil go up and down completely randomly.

Pair Corralation between Broadcom and Imperial Oil

Assuming the 90 days trading horizon Broadcom is expected to generate 2.18 times more return on investment than Imperial Oil. However, Broadcom is 2.18 times more volatile than Imperial Oil. It trades about 0.03 of its potential returns per unit of risk. Imperial Oil is currently generating about 0.0 per unit of risk. If you would invest  5,483  in Broadcom on November 17, 2024 and sell it today you would earn a total of  63.00  from holding Broadcom or generate 1.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Broadcom  vs.  Imperial Oil

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025 -10010203040
JavaScript chart by amCharts 3.21.15AVGO IMO
       Timeline  
Broadcom 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Broadcom exhibited solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb4045505560
Imperial Oil 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Imperial Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Imperial Oil is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb9095100105

Broadcom and Imperial Oil Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-14.08-10.55-7.01-3.480.03.627.3611.1114.8518.59 0.020.040.060.080.100.12
JavaScript chart by amCharts 3.21.15AVGO IMO
       Returns  

Pair Trading with Broadcom and Imperial Oil

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

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