Correlation Between Talanx AG and Broadcom

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

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

Diversification Opportunities for Talanx AG and Broadcom

0.52

Correlation Coefficient

Talanx AG  Broadcom

Very weak diversification

The 3 months correlation between Talanx and Broadcom is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Talanx AG and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and Talanx AG 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 Talanx AG 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 Talanx AG i.e., Talanx AG and Broadcom go up and down completely randomly.

Pair Corralation between Talanx AG and Broadcom

Assuming the 90 days horizon Talanx AG is expected to generate 2.35 times less return on investment than Broadcom. But when comparing it to its historical volatility, Talanx AG is 2.07 times less risky than Broadcom. It trades about 0.1 of its potential returns per unit of risk. Broadcom is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,168  in Broadcom on October 5, 2024 and sell it today you would earn a total of  17,587  from holding Broadcom or generate 340.31% return on investment over 90 days.

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

Talanx AG  vs.  Broadcom

Talanx AG

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Talanx AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Talanx AG reported solid returns over the last few months and may actually be approaching a breakup point.

Broadcom

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Broadcom has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Talanx AG and Broadcom

The main advantage of trading using opposite Talanx AG and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Talanx AG 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 Talanx AG 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 Global Correlations module to find global opportunities by holding instruments from different markets.