Correlation Between Broadcom and Applied Materials
Can any of the company-specific risk be diversified away by investing in both Broadcom and Applied Materials 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 Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Broadcom and Applied Materials, you can compare the effects of market volatilities on Broadcom and Applied Materials 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 Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broadcom and Applied Materials.
Diversification Opportunities for Broadcom and Applied Materials
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Broadcom and Applied is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Broadcom i.e., Broadcom and Applied Materials go up and down completely randomly.
Pair Corralation between Broadcom and Applied Materials
Given the investment horizon of 90 days Broadcom is expected to generate 1.0 times more return on investment than Applied Materials. However, Broadcom is 1.0 times more volatile than Applied Materials. It trades about 0.39 of its potential returns per unit of risk. Applied Materials is currently generating about 0.25 per unit of risk. If you would invest 17,649 in Broadcom on April 23, 2025 and sell it today you would earn a total of 10,685 from holding Broadcom or generate 60.54% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Broadcom vs. Applied Materials
Performance |
Timeline |
Broadcom |
Applied Materials |
Broadcom and Applied Materials Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Broadcom and Applied Materials
The main advantage of trading using opposite Broadcom and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broadcom position performs unexpectedly, Applied Materials 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 Applied Materials will offset losses from the drop in Applied Materials' long position.Broadcom vs. Advanced Micro Devices | Broadcom vs. Micron Technology | Broadcom vs. Intel | Broadcom vs. Taiwan Semiconductor Manufacturing |
Applied Materials vs. KLA Tencor | Applied Materials vs. ASML Holding NV | Applied Materials vs. Axcelis Technologies | Applied Materials vs. Teradyne |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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