Correlation Between Broadcom and VersaBank

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

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

Diversification Opportunities for Broadcom and VersaBank

-0.78

Correlation Coefficient

Broadcom  VersaBank

Pay attention - limited upside

The 3 months correlation between Broadcom and VersaBank is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and VersaBank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VersaBank 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 VersaBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VersaBank has no effect on the direction of Broadcom i.e., Broadcom and VersaBank go up and down completely randomly.

Pair Corralation between Broadcom and VersaBank

Assuming the 90 days trading horizon Broadcom is expected to generate 1.58 times more return on investment than VersaBank. However, Broadcom is 1.58 times more volatile than VersaBank. It trades about 0.15 of its potential returns per unit of risk. VersaBank is currently generating about -0.02 per unit of risk. If you would invest  4,120  in Broadcom on October 25, 2024 and sell it today you would earn a total of  1,626  from holding Broadcom or generate 39.47% return on investment over 90 days.

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

Broadcom  vs.  VersaBank

Broadcom

Risk-Adjusted Performance

11 of 100

Good

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

VersaBank

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Broadcom and VersaBank 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.