Correlation Between Arrow Electronics and Centrica PLC

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

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

Diversification Opportunities for Arrow Electronics and Centrica PLC

-0.02

Correlation Coefficient

Arrow Electronics  Centrica PLC

Good diversification

The 3 months correlation between Arrow and Centrica is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Centrica PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrica PLC and Arrow Electronics 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 Arrow Electronics are associated (or correlated) with Centrica PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrica PLC has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Centrica PLC go up and down completely randomly.

Pair Corralation between Arrow Electronics and Centrica PLC

Assuming the 90 days trading horizon Arrow Electronics is expected to generate 1.12 times less return on investment than Centrica PLC. In addition to that, Arrow Electronics is 1.2 times more volatile than Centrica PLC. It trades about 0.09 of its total potential returns per unit of risk. Centrica PLC is currently generating about 0.12 per unit of volatility. If you would invest  12,175  in Centrica PLC on September 19, 2024 and sell it today you would earn a total of  475.00  from holding Centrica PLC or generate 3.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Arrow Electronics  vs.  Centrica PLC

Arrow Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arrow Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Centrica PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Centrica PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Centrica PLC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arrow Electronics and Centrica PLC

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

The idea behind Arrow Electronics and Centrica PLC 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.