Correlation Between Arrow Electronics and Tesla

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

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

Diversification Opportunities for Arrow Electronics and Tesla

-0.74

Correlation Coefficient

Arrow Electronics  Tesla

Pay attention - limited upside

The 3 months correlation between Arrow and Tesla is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla 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 Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Tesla go up and down completely randomly.

Pair Corralation between Arrow Electronics and Tesla

Considering the 90-day investment horizon Arrow Electronics is expected to under-perform the Tesla. But the stock apears to be less risky and, when comparing its historical volatility, Arrow Electronics is 2.27 times less risky than Tesla. The stock trades about -0.04 of its potential returns per unit of risk. The Tesla Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  21,060  in Tesla Inc on September 3, 2024 and sell it today you would earn a total of  13,456  from holding Tesla Inc or generate 63.89% 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.  Tesla Inc

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.

Tesla Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal essential indicators, Tesla sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arrow Electronics and Tesla

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

The idea behind Arrow Electronics and Tesla 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.