Correlation Between First Solar and Broadcom

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

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

Diversification Opportunities for First Solar and Broadcom

-0.32

Correlation Coefficient

First Solar  Broadcom

Very good diversification

The 3 months correlation between First and Broadcom is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding First Solar and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and First Solar 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 First Solar 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 First Solar i.e., First Solar and Broadcom go up and down completely randomly.

Pair Corralation between First Solar and Broadcom

Given the investment horizon of 90 days First Solar is expected to under-perform the Broadcom. But the stock apears to be less risky and, when comparing its historical volatility, First Solar is 1.34 times less risky than Broadcom. The stock trades about -0.14 of its potential returns per unit of risk. The Broadcom is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  17,204  in Broadcom on September 30, 2024 and sell it today you would earn a total of  6,971  from holding Broadcom or generate 40.52% return on investment over 90 days.

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

First Solar  vs.  Broadcom

First Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's essential indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Broadcom

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Broadcom displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Solar and Broadcom

The main advantage of trading using opposite First Solar and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Solar 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 First Solar 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.