Correlation Between Arrow Electronics and Stepan

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

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

Diversification Opportunities for Arrow Electronics and Stepan

-0.01

Correlation Coefficient

Arrow Electronics  Stepan

Good diversification

The 3 months correlation between Arrow and Stepan is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Stepan go up and down completely randomly.

Pair Corralation between Arrow Electronics and Stepan

Considering the 90-day investment horizon Arrow Electronics is expected to generate 0.9 times more return on investment than Stepan. However, Arrow Electronics is 1.11 times less risky than Stepan. It trades about 0.02 of its potential returns per unit of risk. Stepan Company is currently generating about -0.04 per unit of risk. If you would invest  10,457  in Arrow Electronics on September 20, 2024 and sell it today you would earn a total of  1,123  from holding Arrow Electronics or generate 10.74% return on investment over 90 days.

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

Arrow Electronics  vs.  Stepan Company

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.

Stepan Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Arrow Electronics and Stepan

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

The idea behind Arrow Electronics and Stepan Company 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.