Correlation Between Broadcom and Tower Semiconductor

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

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

Diversification Opportunities for Broadcom and Tower Semiconductor

0.69

Correlation Coefficient

Broadcom  Tower Semiconductor

Poor diversification

The 3 months correlation between Broadcom and Tower is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor 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 Tower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Semiconductor has no effect on the direction of Broadcom i.e., Broadcom and Tower Semiconductor go up and down completely randomly.

Pair Corralation between Broadcom and Tower Semiconductor

Assuming the 90 days horizon Broadcom is expected to generate 0.97 times more return on investment than Tower Semiconductor. However, Broadcom is 1.03 times less risky than Tower Semiconductor. It trades about 0.33 of its potential returns per unit of risk. Tower Semiconductor is currently generating about 0.21 per unit of risk. If you would invest  14,713  in Broadcom on April 21, 2025 and sell it today you would earn a total of  9,662  from holding Broadcom or generate 65.67% return on investment over 90 days.

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

Broadcom  vs.  Tower Semiconductor

Broadcom

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Broadcom reported solid returns over the last few months and may actually be approaching a breakup point.

Tower Semiconductor

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Semiconductor are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Tower Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Broadcom and Tower Semiconductor

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

The idea behind Broadcom and Tower Semiconductor 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.