Correlation Between BBB Foods and Broadcom

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

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

Diversification Opportunities for BBB Foods and Broadcom

0.59

Correlation Coefficient

BBB Foods  Broadcom

Very weak diversification

The 3 months correlation between BBB and Broadcom is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding BBB Foods and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and BBB Foods 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 BBB 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 BBB Foods i.e., BBB Foods and Broadcom go up and down completely randomly.

Pair Corralation between BBB Foods and Broadcom

Given the investment horizon of 90 days BBB Foods is expected to under-perform the Broadcom. But the stock apears to be less risky and, when comparing its historical volatility, BBB Foods is 1.68 times less risky than Broadcom. The stock trades about -0.13 of its potential returns per unit of risk. The Broadcom is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  22,020  in Broadcom on December 20, 2024 and sell it today you would lose (2,463) from holding Broadcom or give up 11.19% of portfolio value over 90 days.

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

BBB Foods  vs.  Broadcom

BBB Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Broadcom

Risk-Adjusted Performance

Very Weak

Over the last 90 days Broadcom has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with BBB Foods and Broadcom

The main advantage of trading using opposite BBB Foods and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BBB Foods 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 BBB 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.