Correlation Between Southwest Gas and BROADCOM

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

By analyzing existing cross correlation between Southwest Gas Holdings and BROADCOM INC 144A, you can compare the effects of market volatilities on Southwest Gas 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 Southwest Gas with a short position of BROADCOM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Gas and BROADCOM.

Diversification Opportunities for Southwest Gas and BROADCOM

0.41

Correlation Coefficient

Southwest Gas  BROADCOM

Very weak diversification

The 3 months correlation between Southwest and BROADCOM is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Gas Holdings and BROADCOM INC 144A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BROADCOM INC 144A and Southwest Gas 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 Southwest Gas Holdings 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 INC 144A has no effect on the direction of Southwest Gas i.e., Southwest Gas and BROADCOM go up and down completely randomly.

Pair Corralation between Southwest Gas and BROADCOM

Considering the 90-day investment horizon Southwest Gas Holdings is expected to generate 1.01 times more return on investment than BROADCOM. However, Southwest Gas is 1.01 times more volatile than BROADCOM INC 144A. It trades about 0.0 of its potential returns per unit of risk. BROADCOM INC 144A is currently generating about -0.12 per unit of risk. If you would invest  7,642  in Southwest Gas Holdings on December 4, 2024 and sell it today you would lose (60.00) from holding Southwest Gas Holdings or give up 0.79% of portfolio value over 90 days.

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

Southwest Gas Holdings  vs.  BROADCOM INC 144A

Southwest Gas Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southwest Gas Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Southwest Gas is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

BROADCOM INC 144A

Risk-Adjusted Performance

Very Weak

Over the last 90 days BROADCOM INC 144A has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for BROADCOM INC 144A investors.

Pair Trading with Southwest Gas and BROADCOM

The main advantage of trading using opposite Southwest Gas and BROADCOM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Gas 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 Southwest Gas Holdings and BROADCOM INC 144A 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.