Correlation Between SWISS WATER and Arrow Electronics

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

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

Diversification Opportunities for SWISS WATER and Arrow Electronics

-0.22

Correlation Coefficient

SWISS WATER  Arrow Electronics

Very good diversification

The 3 months correlation between SWISS and Arrow is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding SWISS WATER DECAFFCOFFEE and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and SWISS WATER 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 SWISS WATER DECAFFCOFFEE are associated (or correlated) with Arrow Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Electronics has no effect on the direction of SWISS WATER i.e., SWISS WATER and Arrow Electronics go up and down completely randomly.

Pair Corralation between SWISS WATER and Arrow Electronics

Assuming the 90 days horizon SWISS WATER DECAFFCOFFEE is expected to generate 2.62 times more return on investment than Arrow Electronics. However, SWISS WATER is 2.62 times more volatile than Arrow Electronics. It trades about -0.03 of its potential returns per unit of risk. Arrow Electronics is currently generating about -0.22 per unit of risk. If you would invest  268.00  in SWISS WATER DECAFFCOFFEE on October 5, 2024 and sell it today you would lose (8.00) from holding SWISS WATER DECAFFCOFFEE or give up 2.99% of portfolio value over 90 days.

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

SWISS WATER DECAFFCOFFEE  vs.  Arrow Electronics

SWISS WATER DECAFFCOFFEE

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days SWISS WATER DECAFFCOFFEE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, SWISS WATER may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with SWISS WATER and Arrow Electronics

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

The idea behind SWISS WATER DECAFFCOFFEE and Arrow Electronics 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.