Correlation Between Arrow Electronics and STMicroelectronics

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

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

Diversification Opportunities for Arrow Electronics and STMicroelectronics

0.25

Correlation Coefficient

Arrow Electronics  STMicroelectronics

Modest diversification

The 3 months correlation between Arrow and STMicroelectronics is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and STMicroelectronics go up and down completely randomly.

Pair Corralation between Arrow Electronics and STMicroelectronics

Assuming the 90 days horizon Arrow Electronics is expected to under-perform the STMicroelectronics. But the stock apears to be less risky and, when comparing its historical volatility, Arrow Electronics is 2.03 times less risky than STMicroelectronics. The stock trades about -0.12 of its potential returns per unit of risk. The STMicroelectronics NV is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,420  in STMicroelectronics NV on December 1, 2024 and sell it today you would earn a total of  16.00  from holding STMicroelectronics NV or generate 0.66% return on investment over 90 days.

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

Arrow Electronics  vs.  STMicroelectronics NV

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.

STMicroelectronics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Arrow Electronics and STMicroelectronics

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

The idea behind Arrow Electronics and STMicroelectronics NV 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.