Correlation Between Broadcom and Meta Platforms

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

By analyzing existing cross correlation between Broadcom and Meta Platforms, you can compare the effects of market volatilities on Broadcom and Meta Platforms 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 Meta Platforms. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broadcom and Meta Platforms.

Diversification Opportunities for Broadcom and Meta Platforms

0.9

Correlation Coefficient

Broadcom  Meta Platforms

Almost no diversification

The 3 months correlation between Broadcom and Meta is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Broadcom i.e., Broadcom and Meta Platforms go up and down completely randomly.

Pair Corralation between Broadcom and Meta Platforms

Given the investment horizon of 90 days Broadcom is expected to generate 0.9 times more return on investment than Meta Platforms. However, Broadcom is 1.11 times less risky than Meta Platforms. It trades about 0.3 of its potential returns per unit of risk. Meta Platforms is currently generating about 0.19 per unit of risk. If you would invest  20,728  in Broadcom on May 8, 2025 and sell it today you would earn a total of  9,439  from holding Broadcom or generate 45.54% 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.  Meta Platforms

Broadcom

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Broadcom displayed solid returns over the last few months and may actually be approaching a breakup point.

Meta Platforms

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Meta Platforms sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Broadcom and Meta Platforms

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

The idea behind Broadcom and Meta Platforms 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.