Correlation Between THRACE PLASTICS and Broadcom

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

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

Diversification Opportunities for THRACE PLASTICS and Broadcom

0.42

Correlation Coefficient

THRACE PLASTICS  Broadcom

Very weak diversification

The 3 months correlation between THRACE and Broadcom is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding THRACE PLASTICS and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and THRACE PLASTICS 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 THRACE PLASTICS 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 THRACE PLASTICS i.e., THRACE PLASTICS and Broadcom go up and down completely randomly.

Pair Corralation between THRACE PLASTICS and Broadcom

Assuming the 90 days trading horizon THRACE PLASTICS is expected to generate 28.87 times less return on investment than Broadcom. But when comparing it to its historical volatility, THRACE PLASTICS is 3.42 times less risky than Broadcom. It trades about 0.01 of its potential returns per unit of risk. Broadcom is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  16,025  in Broadcom on December 4, 2024 and sell it today you would earn a total of  1,755  from holding Broadcom or generate 10.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

THRACE PLASTICS  vs.  Broadcom

THRACE PLASTICS

Risk-Adjusted Performance

Very Weak

Over the last 90 days THRACE PLASTICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, THRACE PLASTICS is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Broadcom

Risk-Adjusted Performance

Modest

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. In spite of comparatively fragile fundamental indicators, Broadcom unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with THRACE PLASTICS and Broadcom

The main advantage of trading using opposite THRACE PLASTICS and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if THRACE PLASTICS 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 THRACE PLASTICS 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.