Correlation Between BCE and Broadcom

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Can any of the company-specific risk be diversified away by investing in both BCE and Broadcom 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 BCE and Broadcom into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BCE Inc Pref and Broadcom, you can compare the effects of market volatilities on BCE and Broadcom 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 BCE with a short position of Broadcom. Check out your portfolio center. Please also check ongoing floating volatility patterns of BCE and Broadcom.

Diversification Opportunities for BCE and Broadcom

BCEBroadcomDiversified AwayBCEBroadcomDiversified Away100%
0.49
  Correlation Coefficient

Very weak diversification

The 3 months correlation between BCE and Broadcom is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc Pref and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and BCE 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 BCE Inc Pref are associated (or correlated) with Broadcom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadcom has no effect on the direction of BCE i.e., BCE and Broadcom go up and down completely randomly.

Pair Corralation between BCE and Broadcom

Assuming the 90 days trading horizon BCE is expected to generate 6.67 times less return on investment than Broadcom. But when comparing it to its historical volatility, BCE Inc Pref is 7.14 times less risky than Broadcom. It trades about 0.15 of its potential returns per unit of risk. Broadcom is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,949  in Broadcom on November 18, 2024 and sell it today you would earn a total of  1,597  from holding Broadcom or generate 40.44% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

BCE Inc Pref  vs.  Broadcom

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10010203040
JavaScript chart by amCharts 3.21.15BCE-PB AVGO
       Timeline  
BCE Inc Pref 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in BCE Inc Pref are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, BCE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb1616.51717.5
Broadcom 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Broadcom exhibited solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb4045505560

BCE and Broadcom Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.92-1.42-0.92-0.420.05260.541.041.542.042.54 0.20.40.60.81.0
JavaScript chart by amCharts 3.21.15BCE-PB AVGO
       Returns  

Pair Trading with BCE and Broadcom

The main advantage of trading using opposite BCE and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BCE position performs unexpectedly, Broadcom 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 Broadcom will offset losses from the drop in Broadcom's long position.
The idea behind BCE Inc Pref and Broadcom 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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