Correlation Between Broadcom and Hexcel

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

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

Diversification Opportunities for Broadcom and Hexcel

0.31

Correlation Coefficient

Broadcom  Hexcel

Weak diversification

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

Pair Corralation between Broadcom and Hexcel

Assuming the 90 days trading horizon Broadcom is expected to generate 1.72 times more return on investment than Hexcel. However, Broadcom is 1.72 times more volatile than Hexcel. It trades about 0.09 of its potential returns per unit of risk. Hexcel is currently generating about 0.13 per unit of risk. If you would invest  13,695  in Broadcom on September 5, 2024 and sell it today you would earn a total of  2,105  from holding Broadcom or generate 15.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Broadcom  vs.  Hexcel

Broadcom

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Broadcom unveiled solid returns over the last few months and may actually be approaching a breakup point.

Hexcel

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Broadcom and Hexcel

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

The idea behind Broadcom and Hexcel 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 Transaction History module to view history of all your transactions and understand their impact on performance.