Correlation Between Charoen Pokphand and Broadcom

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

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

Diversification Opportunities for Charoen Pokphand and Broadcom

0.01

Correlation Coefficient

Charoen Pokphand  Broadcom

Significant diversification

The 3 months correlation between Charoen and Broadcom is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Charoen Pokphand Foods and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and Charoen Pokphand 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 Charoen Pokphand Foods 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 Charoen Pokphand i.e., Charoen Pokphand and Broadcom go up and down completely randomly.

Pair Corralation between Charoen Pokphand and Broadcom

Assuming the 90 days trading horizon Charoen Pokphand is expected to generate 19.34 times less return on investment than Broadcom. In addition to that, Charoen Pokphand is 1.01 times more volatile than Broadcom. It trades about 0.01 of its total potential returns per unit of risk. Broadcom is currently generating about 0.11 per unit of volatility. If you would invest  5,012  in Broadcom on September 20, 2024 and sell it today you would earn a total of  16,533  from holding Broadcom or generate 329.87% return on investment over 90 days.

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

Charoen Pokphand Foods  vs.  Broadcom

Charoen Pokphand Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Charoen Pokphand Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Charoen Pokphand is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Broadcom

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 11 (%) 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 Charoen Pokphand and Broadcom

The main advantage of trading using opposite Charoen Pokphand and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charoen Pokphand 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 Charoen Pokphand Foods 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.