Correlation Between Broadcom and Universal Display

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

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

Diversification Opportunities for Broadcom and Universal Display

-0.31

Correlation Coefficient

Broadcom  Universal Display

Very good diversification

The 3 months correlation between Broadcom and Universal is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Universal Display Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Display Corp 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 Universal Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Display Corp has no effect on the direction of Broadcom i.e., Broadcom and Universal Display go up and down completely randomly.

Pair Corralation between Broadcom and Universal Display

Assuming the 90 days trading horizon Broadcom is expected to generate 1.62 times more return on investment than Universal Display. However, Broadcom is 1.62 times more volatile than Universal Display Corp. It trades about 0.13 of its potential returns per unit of risk. Universal Display Corp is currently generating about -0.17 per unit of risk. If you would invest  17,722  in Broadcom on September 26, 2024 and sell it today you would earn a total of  6,246  from holding Broadcom or generate 35.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Broadcom  vs.  Universal Display Corp

Broadcom

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Broadcom unveiled solid returns over the last few months and may actually be approaching a breakup point.

Universal Display Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Display Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Broadcom and Universal Display

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

The idea behind Broadcom and Universal Display Corp 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.