Correlation Between Arrow Electronics and Avnet

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

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

Diversification Opportunities for Arrow Electronics and Avnet

0.83

Correlation Coefficient

Arrow Electronics  Avnet

Very poor diversification

The 3 months correlation between Arrow and Avnet is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Avnet Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avnet Inc 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 Avnet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avnet Inc has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Avnet go up and down completely randomly.

Pair Corralation between Arrow Electronics and Avnet

Considering the 90-day investment horizon Arrow Electronics is expected to generate 0.99 times more return on investment than Avnet. However, Arrow Electronics is 1.01 times less risky than Avnet. It trades about -0.07 of its potential returns per unit of risk. Avnet Inc is currently generating about -0.08 per unit of risk. If you would invest  11,397  in Arrow Electronics on December 27, 2024 and sell it today you would lose (861.00) from holding Arrow Electronics or give up 7.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Arrow Electronics  vs.  Avnet Inc

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 latest uncertain performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Avnet Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avnet Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Arrow Electronics and Avnet

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

The idea behind Arrow Electronics and Avnet Inc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.