Correlation Between Arrow Electronics and Madison Square

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

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

Diversification Opportunities for Arrow Electronics and Madison Square

0.74

Correlation Coefficient

Arrow Electronics  Madison Square

Poor diversification

The 3 months correlation between Arrow and Madison is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Madison Square Garden in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Square Garden 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 Madison Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Square Garden has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Madison Square go up and down completely randomly.

Pair Corralation between Arrow Electronics and Madison Square

Assuming the 90 days horizon Arrow Electronics is expected to generate 1.02 times more return on investment than Madison Square. However, Arrow Electronics is 1.02 times more volatile than Madison Square Garden. It trades about -0.08 of its potential returns per unit of risk. Madison Square Garden is currently generating about -0.14 per unit of risk. If you would invest  10,800  in Arrow Electronics on December 28, 2024 and sell it today you would lose (900.00) from holding Arrow Electronics or give up 8.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Arrow Electronics  vs.  Madison Square Garden

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.

Madison Square Garden

Risk-Adjusted Performance

Very Weak

Over the last 90 days Madison Square Garden has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Arrow Electronics and Madison Square

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

The idea behind Arrow Electronics and Madison Square Garden 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.