Correlation Between Broadcom and Valero Energy

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

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

Diversification Opportunities for Broadcom and Valero Energy

0.43

Correlation Coefficient

Broadcom  Valero Energy

Very weak diversification

The 3 months correlation between Broadcom and Valero is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Valero Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy 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 Valero Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valero Energy has no effect on the direction of Broadcom i.e., Broadcom and Valero Energy go up and down completely randomly.

Pair Corralation between Broadcom and Valero Energy

Assuming the 90 days trading horizon Broadcom is expected to generate 2.48 times more return on investment than Valero Energy. However, Broadcom is 2.48 times more volatile than Valero Energy. It trades about 0.06 of its potential returns per unit of risk. Valero Energy is currently generating about -0.07 per unit of risk. If you would invest  1,452  in Broadcom on December 2, 2024 and sell it today you would earn a total of  186.00  from holding Broadcom or generate 12.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	72.58%
Values	Daily Returns

Broadcom  vs.  Valero Energy

Broadcom

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 4 (%) 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.

Valero Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Valero Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators 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 Valero Energy

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

The idea behind Broadcom and Valero Energy 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .