Correlation Between Enbridge and Broadcom

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

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

Diversification Opportunities for Enbridge and Broadcom

0.35

Correlation Coefficient

Enbridge  Broadcom

Weak diversification

The 3 months correlation between Enbridge and Broadcom is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and Enbridge 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 Enbridge 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 Enbridge i.e., Enbridge and Broadcom go up and down completely randomly.

Pair Corralation between Enbridge and Broadcom

Assuming the 90 days trading horizon Enbridge is expected to generate 0.37 times more return on investment than Broadcom. However, Enbridge is 2.7 times less risky than Broadcom. It trades about 0.29 of its potential returns per unit of risk. Broadcom is currently generating about 0.06 per unit of risk. If you would invest  5,368  in Enbridge on September 4, 2024 and sell it today you would earn a total of  673.00  from holding Enbridge or generate 12.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	64.62%
Values	Daily Returns

Enbridge  vs.  Broadcom

Enbridge

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Enbridge unveiled solid returns over the last few months and may actually be approaching a breakup point.

Broadcom

Risk-Adjusted Performance

4 of 100

Insignificant

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 uncertain basic indicators, Broadcom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Enbridge and Broadcom

The main advantage of trading using opposite Enbridge and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enbridge 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 Enbridge 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.