Correlation Between BROADCOM and Catalyst Pharmaceuticals

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

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

Diversification Opportunities for BROADCOM and Catalyst Pharmaceuticals

-0.09

Correlation Coefficient

BROADCOM  Catalyst Pharmaceuticals

Good diversification

The 3 months correlation between BROADCOM and Catalyst is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding BROADCOM P BROADCOM and Catalyst Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalyst Pharmaceuticals and BROADCOM 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 BROADCOM P BROADCOM are associated (or correlated) with Catalyst Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalyst Pharmaceuticals has no effect on the direction of BROADCOM i.e., BROADCOM and Catalyst Pharmaceuticals go up and down completely randomly.

Pair Corralation between BROADCOM and Catalyst Pharmaceuticals

Assuming the 90 days trading horizon BROADCOM is expected to generate 21.37 times less return on investment than Catalyst Pharmaceuticals. But when comparing it to its historical volatility, BROADCOM P BROADCOM is 6.71 times less risky than Catalyst Pharmaceuticals. It trades about 0.0 of its potential returns per unit of risk. Catalyst Pharmaceuticals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,027  in Catalyst Pharmaceuticals on October 10, 2024 and sell it today you would lose (74.00) from holding Catalyst Pharmaceuticals or give up 3.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

BROADCOM P BROADCOM  vs.  Catalyst Pharmaceuticals

BROADCOM P BROADCOM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BROADCOM P BROADCOM has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BROADCOM is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Catalyst Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BROADCOM and Catalyst Pharmaceuticals

The main advantage of trading using opposite BROADCOM and Catalyst Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BROADCOM position performs unexpectedly, Catalyst Pharmaceuticals 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 Catalyst Pharmaceuticals will offset losses from the drop in Catalyst Pharmaceuticals' long position.

The idea behind BROADCOM P BROADCOM and Catalyst Pharmaceuticals 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.