Correlation Between Broadcom and Magellan Aerospace

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

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

Diversification Opportunities for Broadcom and Magellan Aerospace

-0.59

Correlation Coefficient

Broadcom  Magellan Aerospace

Excellent diversification

The 3 months correlation between Broadcom and Magellan is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Magellan Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magellan Aerospace 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 Magellan Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magellan Aerospace has no effect on the direction of Broadcom i.e., Broadcom and Magellan Aerospace go up and down completely randomly.

Pair Corralation between Broadcom and Magellan Aerospace

Assuming the 90 days trading horizon Broadcom is expected to generate 1.97 times more return on investment than Magellan Aerospace. However, Broadcom is 1.97 times more volatile than Magellan Aerospace. It trades about 0.15 of its potential returns per unit of risk. Magellan Aerospace is currently generating about 0.0 per unit of risk. If you would invest  4,099  in Broadcom on October 24, 2024 and sell it today you would earn a total of  1,636  from holding Broadcom or generate 39.91% return on investment over 90 days.

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

Broadcom  vs.  Magellan Aerospace

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 rather unfluctuating technical and fundamental indicators, Broadcom exhibited solid returns over the last few months and may actually be approaching a breakup point.

Magellan Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magellan Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Magellan Aerospace 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 Magellan Aerospace

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

The idea behind Broadcom and Magellan Aerospace 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..