Correlation Between Arrow Electronics and Mastercard

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

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

Diversification Opportunities for Arrow Electronics and Mastercard

0.26

Correlation Coefficient

Arrow Electronics  Mastercard

Modest diversification

The 3 months correlation between Arrow and Mastercard is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Mastercard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard 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 Mastercard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Mastercard go up and down completely randomly.

Pair Corralation between Arrow Electronics and Mastercard

Assuming the 90 days horizon Arrow Electronics is expected to under-perform the Mastercard. In addition to that, Arrow Electronics is 1.12 times more volatile than Mastercard. It trades about -0.11 of its total potential returns per unit of risk. Mastercard is currently generating about 0.0 per unit of volatility. If you would invest  50,873  in Mastercard on December 30, 2024 and sell it today you would lose (353.00) from holding Mastercard or give up 0.69% of portfolio value over 90 days.

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

Arrow Electronics  vs.  Mastercard

Arrow Electronics

Risk-Adjusted Performance

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.

Mastercard

Risk-Adjusted Performance

Weak

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

Pair Trading with Arrow Electronics and Mastercard

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

The idea behind Arrow Electronics and Mastercard 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.