Correlation Between Kaiser Aluminum and Broadcom

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

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

Diversification Opportunities for Kaiser Aluminum and Broadcom

0.95

Correlation Coefficient

Kaiser Aluminum  Broadcom

Almost no diversification

The 3 months correlation between Kaiser and Broadcom is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom and Kaiser Aluminum 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 Kaiser Aluminum 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 Kaiser Aluminum i.e., Kaiser Aluminum and Broadcom go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and Broadcom

Assuming the 90 days trading horizon Kaiser Aluminum is expected to generate 0.88 times more return on investment than Broadcom. However, Kaiser Aluminum is 1.14 times less risky than Broadcom. It trades about 0.39 of its potential returns per unit of risk. Broadcom is currently generating about 0.33 per unit of risk. If you would invest  4,599  in Kaiser Aluminum on April 20, 2025 and sell it today you would earn a total of  3,151  from holding Kaiser Aluminum or generate 68.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Kaiser Aluminum  vs.  Broadcom

Kaiser Aluminum

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Kaiser Aluminum reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Kaiser Aluminum and Broadcom

The main advantage of trading using opposite Kaiser Aluminum and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kaiser Aluminum 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 Kaiser Aluminum 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.