Correlation Between Air Canada and Broadcom

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

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

Diversification Opportunities for Air Canada and Broadcom

0.06

Correlation Coefficient

Air Canada  Broadcom

Significant diversification

The 3 months correlation between Air and Broadcom is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and Air Canada 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 Air Canada 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 Air Canada i.e., Air Canada and Broadcom go up and down completely randomly.

Pair Corralation between Air Canada and Broadcom

Assuming the 90 days horizon Air Canada is expected to under-perform the Broadcom. But the stock apears to be less risky and, when comparing its historical volatility, Air Canada is 2.63 times less risky than Broadcom. The stock trades about -0.18 of its potential returns per unit of risk. The Broadcom is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  3,939  in Broadcom on September 26, 2024 and sell it today you would earn a total of  1,784  from holding Broadcom or generate 45.29% return on investment over 90 days.

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

Air Canada  vs.  Broadcom

Air Canada

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Air Canada displayed solid returns over the last few months and may actually be approaching a breakup point.

Broadcom

Risk-Adjusted Performance

10 of 100

OK

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 rather unsteady technical and fundamental indicators, Broadcom exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Canada and Broadcom

The main advantage of trading using opposite Air Canada and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Canada 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 Air Canada 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.

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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.