Correlation Between Broadcom and ULTRA CLEAN

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

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

Diversification Opportunities for Broadcom and ULTRA CLEAN

0.6

Correlation Coefficient

Broadcom  ULTRA CLEAN

Poor diversification

The 3 months correlation between Broadcom and ULTRA is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and ULTRA CLEAN HLDGS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ULTRA CLEAN HLDGS 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 ULTRA CLEAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ULTRA CLEAN HLDGS has no effect on the direction of Broadcom i.e., Broadcom and ULTRA CLEAN go up and down completely randomly.

Pair Corralation between Broadcom and ULTRA CLEAN

Assuming the 90 days trading horizon Broadcom is expected to generate 1.56 times less return on investment than ULTRA CLEAN. But when comparing it to its historical volatility, Broadcom is 1.19 times less risky than ULTRA CLEAN. It trades about 0.07 of its potential returns per unit of risk. ULTRA CLEAN HLDGS is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,120  in ULTRA CLEAN HLDGS on September 3, 2024 and sell it today you would earn a total of  500.00  from holding ULTRA CLEAN HLDGS or generate 16.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Broadcom  vs.  ULTRA CLEAN HLDGS

Broadcom

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Broadcom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ULTRA CLEAN HLDGS

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ULTRA CLEAN HLDGS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, ULTRA CLEAN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Broadcom and ULTRA CLEAN

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

The idea behind Broadcom and ULTRA CLEAN HLDGS 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..