Correlation Between Arrow Electronics and Magna International

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

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

Diversification Opportunities for Arrow Electronics and Magna International

-0.62

Correlation Coefficient

Arrow Electronics  Magna International

Excellent diversification

The 3 months correlation between Arrow and Magna is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International 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 Magna International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna International has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Magna International go up and down completely randomly.

Pair Corralation between Arrow Electronics and Magna International

Considering the 90-day investment horizon Arrow Electronics is expected to generate 0.74 times more return on investment than Magna International. However, Arrow Electronics is 1.36 times less risky than Magna International. It trades about 0.07 of its potential returns per unit of risk. Magna International is currently generating about -0.04 per unit of risk. If you would invest  11,372  in Arrow Electronics on September 20, 2024 and sell it today you would earn a total of  208.00  from holding Arrow Electronics or generate 1.83% 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.  Magna International

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 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.

Magna International

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Magna International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Arrow Electronics and Magna International

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

The idea behind Arrow Electronics and Magna International 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.