Correlation Between KAGA EL and Arrow Electronics

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

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

Diversification Opportunities for KAGA EL and Arrow Electronics

0.53

Correlation Coefficient

KAGA EL  Arrow Electronics

Very weak diversification

The 3 months correlation between KAGA and Arrow is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding KAGA EL LTD and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and KAGA EL 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 KAGA EL LTD 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 KAGA EL i.e., KAGA EL and Arrow Electronics go up and down completely randomly.

Pair Corralation between KAGA EL and Arrow Electronics

Assuming the 90 days horizon KAGA EL LTD is expected to under-perform the Arrow Electronics. But the stock apears to be less risky and, when comparing its historical volatility, KAGA EL LTD is 1.64 times less risky than Arrow Electronics. The stock trades about -0.02 of its potential returns per unit of risk. The Arrow Electronics is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  11,600  in Arrow Electronics on September 3, 2024 and sell it today you would lose (300.00) from holding Arrow Electronics or give up 2.59% of portfolio value over 90 days.

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

KAGA EL LTD  vs.  Arrow Electronics

KAGA EL LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KAGA EL LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, KAGA EL is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 nearly stable basic indicators, Arrow Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with KAGA EL and Arrow Electronics

The main advantage of trading using opposite KAGA EL and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KAGA EL 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 KAGA EL LTD 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.

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.