Correlation Between Broadcom and ConocoPhillips

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

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

Diversification Opportunities for Broadcom and ConocoPhillips

0.6

Correlation Coefficient

Broadcom  ConocoPhillips

Poor diversification

The 3 months correlation between Broadcom and ConocoPhillips is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and ConocoPhillips in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConocoPhillips 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 ConocoPhillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConocoPhillips has no effect on the direction of Broadcom i.e., Broadcom and ConocoPhillips go up and down completely randomly.

Pair Corralation between Broadcom and ConocoPhillips

Assuming the 90 days trading horizon Broadcom is expected to under-perform the ConocoPhillips. In addition to that, Broadcom is 1.51 times more volatile than ConocoPhillips. It trades about -0.15 of its total potential returns per unit of risk. ConocoPhillips is currently generating about -0.01 per unit of volatility. If you would invest  4,984  in ConocoPhillips on December 28, 2024 and sell it today you would lose (159.00) from holding ConocoPhillips or give up 3.19% of portfolio value over 90 days.

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

Broadcom  vs.  ConocoPhillips

Broadcom

Risk-Adjusted Performance

Very Weak

Over the last 90 days Broadcom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

ConocoPhillips

Risk-Adjusted Performance

Very Weak

Over the last 90 days ConocoPhillips has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ConocoPhillips is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Broadcom and ConocoPhillips

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

The idea behind Broadcom and ConocoPhillips 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.