Correlation Between Broadcom and Fresenius Medical

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

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

Diversification Opportunities for Broadcom and Fresenius Medical

-0.38

Correlation Coefficient

Broadcom  Fresenius Medical

Very good diversification

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

Pair Corralation between Broadcom and Fresenius Medical

Assuming the 90 days trading horizon Broadcom is expected to generate 10.53 times more return on investment than Fresenius Medical. However, Broadcom is 10.53 times more volatile than Fresenius Medical Care. It trades about 0.16 of its potential returns per unit of risk. Fresenius Medical Care is currently generating about -0.13 per unit of risk. If you would invest  1,426  in Broadcom on October 8, 2024 and sell it today you would earn a total of  638.00  from holding Broadcom or generate 44.74% return on investment over 90 days.

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

Broadcom  vs.  Fresenius Medical Care

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

Fresenius Medical Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fresenius Medical Care has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Fresenius Medical 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 Fresenius Medical

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

The idea behind Broadcom and Fresenius Medical Care 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.