Correlation Between ARROW ELECTRONICS and Lloyds Banking

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

By analyzing existing cross correlation between ARROW ELECTRONICS and Lloyds Banking Group, you can compare the effects of market volatilities on ARROW ELECTRONICS and Lloyds Banking 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 Lloyds Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARROW ELECTRONICS and Lloyds Banking.

Diversification Opportunities for ARROW ELECTRONICS and Lloyds Banking

0.7

Correlation Coefficient

ARROW ELECTRONICS  Lloyds Banking

Poor diversification

The 3 months correlation between ARROW and Lloyds is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding ARROW ELECTRONICS and Lloyds Banking Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lloyds Banking Group 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 Lloyds Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lloyds Banking Group has no effect on the direction of ARROW ELECTRONICS i.e., ARROW ELECTRONICS and Lloyds Banking go up and down completely randomly.

Pair Corralation between ARROW ELECTRONICS and Lloyds Banking

Assuming the 90 days trading horizon ARROW ELECTRONICS is expected to generate 0.96 times more return on investment than Lloyds Banking. However, ARROW ELECTRONICS is 1.04 times less risky than Lloyds Banking. It trades about 0.1 of its potential returns per unit of risk. Lloyds Banking Group is currently generating about -0.03 per unit of risk. If you would invest  11,000  in ARROW ELECTRONICS on September 17, 2024 and sell it today you would earn a total of  400.00  from holding ARROW ELECTRONICS or generate 3.64% return on investment over 90 days.

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

ARROW ELECTRONICS  vs.  Lloyds Banking Group

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. In spite of comparatively stable basic indicators, ARROW ELECTRONICS is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Lloyds Banking Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with ARROW ELECTRONICS and Lloyds Banking

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

The idea behind ARROW ELECTRONICS and Lloyds Banking Group 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.