Correlation Between DiamondRock Hospitality and Broadcom

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

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

Diversification Opportunities for DiamondRock Hospitality and Broadcom

-0.12

Correlation Coefficient

DiamondRock Hospitality  Broadcom

Good diversification

The 3 months correlation between DiamondRock and Broadcom is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding DiamondRock Hospitality and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and DiamondRock Hospitality 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 DiamondRock Hospitality 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 DiamondRock Hospitality i.e., DiamondRock Hospitality and Broadcom go up and down completely randomly.

Pair Corralation between DiamondRock Hospitality and Broadcom

Assuming the 90 days horizon DiamondRock Hospitality is expected to under-perform the Broadcom. But the stock apears to be less risky and, when comparing its historical volatility, DiamondRock Hospitality is 4.18 times less risky than Broadcom. The stock trades about -0.16 of its potential returns per unit of risk. The Broadcom is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  16,000  in Broadcom on December 4, 2024 and sell it today you would earn a total of  1,838  from holding Broadcom or generate 11.49% return on investment over 90 days.

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

DiamondRock Hospitality  vs.  Broadcom

DiamondRock Hospitality

Risk-Adjusted Performance

Very Weak

Over the last 90 days DiamondRock Hospitality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 nearly fragile basic indicators, Broadcom reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DiamondRock Hospitality and Broadcom

The main advantage of trading using opposite DiamondRock Hospitality and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DiamondRock Hospitality 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 DiamondRock Hospitality 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.