Correlation Between Arrow Electronics, and Microsoft

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

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

Diversification Opportunities for Arrow Electronics, and Microsoft

0.63

Correlation Coefficient

Arrow Electronics,  Microsoft

Poor diversification

The 3 months correlation between Arrow and Microsoft is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics, and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Arrow Electronics, i.e., Arrow Electronics, and Microsoft go up and down completely randomly.

Pair Corralation between Arrow Electronics, and Microsoft

Assuming the 90 days trading horizon Arrow Electronics, is expected to generate 11.91 times less return on investment than Microsoft. But when comparing it to its historical volatility, Arrow Electronics, is 1.43 times less risky than Microsoft. It trades about 0.01 of its potential returns per unit of risk. Microsoft is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10,041  in Microsoft on October 24, 2024 and sell it today you would earn a total of  955.00  from holding Microsoft or generate 9.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Arrow Electronics,  vs.  Microsoft

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 somewhat strong basic indicators, Arrow Electronics, is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Microsoft

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Arrow Electronics, and Microsoft

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

The idea behind Arrow Electronics, and Microsoft 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.