Correlation Between Arrow Electronics and Starbucks

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

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

Diversification Opportunities for Arrow Electronics and Starbucks

-0.56

Correlation Coefficient

Arrow Electronics  Starbucks

Excellent diversification

The 3 months correlation between Arrow and Starbucks is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks 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 Starbucks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starbucks has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Starbucks go up and down completely randomly.

Pair Corralation between Arrow Electronics and Starbucks

Considering the 90-day investment horizon Arrow Electronics is expected to under-perform the Starbucks. In addition to that, Arrow Electronics is 1.11 times more volatile than Starbucks. It trades about -0.02 of its total potential returns per unit of risk. Starbucks is currently generating about 0.15 per unit of volatility. If you would invest  9,826  in Starbucks on September 2, 2024 and sell it today you would earn a total of  420.00  from holding Starbucks or generate 4.27% return on investment over 90 days.

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

Arrow Electronics  vs.  Starbucks

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 fairly stable basic indicators, Arrow Electronics is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Starbucks

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Starbucks may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Arrow Electronics and Starbucks

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

The idea behind Arrow Electronics and Starbucks 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.