Correlation Between Arrow Electronics and American Airlines

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

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

Diversification Opportunities for Arrow Electronics and American Airlines

-0.72

Correlation Coefficient

Arrow Electronics  American Airlines

Pay attention - limited upside

The 3 months correlation between Arrow and American is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and American Airlines go up and down completely randomly.

Pair Corralation between Arrow Electronics and American Airlines

Considering the 90-day investment horizon Arrow Electronics is expected to under-perform the American Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Arrow Electronics is 1.68 times less risky than American Airlines. The stock trades about 0.0 of its potential returns per unit of risk. The American Airlines Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,438  in American Airlines Group on October 5, 2024 and sell it today you would earn a total of  305.00  from holding American Airlines Group or generate 21.21% return on investment over 90 days.

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

Arrow Electronics  vs.  American Airlines 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 uncertain performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

American Airlines

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arrow Electronics and American Airlines

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

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