Correlation Between BROADCOM and NETGEAR

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

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

Diversification Opportunities for BROADCOM and NETGEAR

-0.54

Correlation Coefficient

BROADCOM  NETGEAR

Excellent diversification

The 3 months correlation between BROADCOM and NETGEAR is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding BROADCOM INC 144A and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR 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 INC 144A are associated (or correlated) with NETGEAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NETGEAR has no effect on the direction of BROADCOM i.e., BROADCOM and NETGEAR go up and down completely randomly.

Pair Corralation between BROADCOM and NETGEAR

Assuming the 90 days trading horizon BROADCOM INC 144A is expected to generate 29.83 times more return on investment than NETGEAR. However, BROADCOM is 29.83 times more volatile than NETGEAR. It trades about 0.08 of its potential returns per unit of risk. NETGEAR is currently generating about 0.04 per unit of risk. If you would invest  8,484  in BROADCOM INC 144A on September 15, 2024 and sell it today you would earn a total of  0.00  from holding BROADCOM INC 144A or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	77.58%
Values	Daily Returns

BROADCOM INC 144A  vs.  NETGEAR

BROADCOM INC 144A

Risk-Adjusted Performance

0 of 100

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.

NETGEAR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BROADCOM and NETGEAR

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

The idea behind BROADCOM INC 144A and NETGEAR 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.