Correlation Between Broadcom and Exxon

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

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

Diversification Opportunities for Broadcom and Exxon

-0.73

Correlation Coefficient

Broadcom  Exxon

Pay attention - limited upside

The 3 months correlation between Broadcom and Exxon is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and EXXON MOBIL CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EXXON MOBIL CDR 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 Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EXXON MOBIL CDR has no effect on the direction of Broadcom i.e., Broadcom and Exxon go up and down completely randomly.

Pair Corralation between Broadcom and Exxon

Assuming the 90 days trading horizon Broadcom is expected to generate 0.57 times more return on investment than Exxon. However, Broadcom is 1.76 times less risky than Exxon. It trades about 0.12 of its potential returns per unit of risk. EXXON MOBIL CDR is currently generating about 0.03 per unit of risk. If you would invest  2,201  in Broadcom on September 28, 2024 and sell it today you would earn a total of  3,522  from holding Broadcom or generate 160.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.63%
Values	Daily Returns

Broadcom  vs.  EXXON MOBIL CDR

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

EXXON MOBIL CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EXXON MOBIL CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Broadcom and Exxon

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

The idea behind Broadcom and EXXON MOBIL CDR 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.