Correlation Between Broadcom and Alibaba Group

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

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

Diversification Opportunities for Broadcom and Alibaba Group

-0.38

Correlation Coefficient

Broadcom  Alibaba Group

Very good diversification

The 3 months correlation between Broadcom and Alibaba is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Alibaba Group Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alibaba Group Holding 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 Alibaba Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alibaba Group Holding has no effect on the direction of Broadcom i.e., Broadcom and Alibaba Group go up and down completely randomly.

Pair Corralation between Broadcom and Alibaba Group

Assuming the 90 days trading horizon Broadcom is expected to generate 1.53 times less return on investment than Alibaba Group. In addition to that, Broadcom is 1.29 times more volatile than Alibaba Group Holding. It trades about 0.04 of its total potential returns per unit of risk. Alibaba Group Holding is currently generating about 0.08 per unit of volatility. If you would invest  1,800  in Alibaba Group Holding on October 21, 2024 and sell it today you would earn a total of  42.00  from holding Alibaba Group Holding or generate 2.33% return on investment over 90 days.

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

Broadcom  vs.  Alibaba Group Holding

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. Despite somewhat uncertain technical and fundamental indicators, Broadcom sustained solid returns over the last few months and may actually be approaching a breakup point.

Alibaba Group Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alibaba Group Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Broadcom and Alibaba Group

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

The idea behind Broadcom and Alibaba Group Holding 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.