Correlation Between ARROW ELECTRONICS and Richardson Electronics

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

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

Diversification Opportunities for ARROW ELECTRONICS and Richardson Electronics

0.61

Correlation Coefficient

ARROW ELECTRONICS  Richardson Electronics

Poor diversification

The 3 months correlation between ARROW and Richardson is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding ARROW ELECTRONICS and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics 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 Richardson Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richardson Electronics has no effect on the direction of ARROW ELECTRONICS i.e., ARROW ELECTRONICS and Richardson Electronics go up and down completely randomly.

Pair Corralation between ARROW ELECTRONICS and Richardson Electronics

Assuming the 90 days trading horizon ARROW ELECTRONICS is expected to generate 3.09 times more return on investment than Richardson Electronics. However, ARROW ELECTRONICS is 3.09 times more volatile than Richardson Electronics. It trades about 0.03 of its potential returns per unit of risk. Richardson Electronics is currently generating about -0.01 per unit of risk. If you would invest  10,900  in ARROW ELECTRONICS on December 8, 2024 and sell it today you would lose (1,150) from holding ARROW ELECTRONICS or give up 10.55% of portfolio value over 90 days.

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

ARROW ELECTRONICS  vs.  Richardson Electronics

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. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Richardson Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Richardson 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.

Pair Trading with ARROW ELECTRONICS and Richardson Electronics

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

The idea behind ARROW ELECTRONICS and Richardson Electronics 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.