Correlation Between Arrow Electronics and MagnaChip Semiconductor

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

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

Diversification Opportunities for Arrow Electronics and MagnaChip Semiconductor

0.53

Correlation Coefficient

Arrow Electronics  MagnaChip Semiconductor

Very weak diversification

The 3 months correlation between Arrow and MagnaChip is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and MagnaChip Semiconductor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MagnaChip Semiconductor 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 MagnaChip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MagnaChip Semiconductor has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and MagnaChip Semiconductor go up and down completely randomly.

Pair Corralation between Arrow Electronics and MagnaChip Semiconductor

Assuming the 90 days horizon Arrow Electronics is expected to under-perform the MagnaChip Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Arrow Electronics is 2.05 times less risky than MagnaChip Semiconductor. The stock trades about -0.19 of its potential returns per unit of risk. The MagnaChip Semiconductor Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  392.00  in MagnaChip Semiconductor Corp on October 11, 2024 and sell it today you would earn a total of  6.00  from holding MagnaChip Semiconductor Corp or generate 1.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

Arrow Electronics  vs.  MagnaChip Semiconductor Corp

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 latest unsteady 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.

MagnaChip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MagnaChip Semiconductor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, MagnaChip Semiconductor is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Arrow Electronics and MagnaChip Semiconductor

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

The idea behind Arrow Electronics and MagnaChip Semiconductor Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.