Correlation Between Arrow Electronics and 76720AAG1

Can any of the company-specific risk be diversified away by investing in both Arrow Electronics and 76720AAG1 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 76720AAG1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arrow Electronics and RIO TINTO FIN, you can compare the effects of market volatilities on Arrow Electronics and 76720AAG1 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 76720AAG1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arrow Electronics and 76720AAG1.

Diversification Opportunities for Arrow Electronics and 76720AAG1

0.68

Correlation Coefficient

Arrow Electronics  76720AAG1

Poor diversification

The 3 months correlation between Arrow and 76720AAG1 is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and RIO TINTO FIN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RIO TINTO FIN 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 76720AAG1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RIO TINTO FIN has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and 76720AAG1 go up and down completely randomly.

Pair Corralation between Arrow Electronics and 76720AAG1

Considering the 90-day investment horizon Arrow Electronics is expected to generate 157.22 times less return on investment than 76720AAG1. But when comparing it to its historical volatility, Arrow Electronics is 45.61 times less risky than 76720AAG1. It trades about 0.02 of its potential returns per unit of risk. RIO TINTO FIN is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,200  in RIO TINTO FIN on September 3, 2024 and sell it today you would lose (1,074) from holding RIO TINTO FIN or give up 11.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	72.32%
Values	Daily Returns

Arrow Electronics  vs.  RIO TINTO FIN

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.

RIO TINTO FIN

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RIO TINTO FIN has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for RIO TINTO FIN investors.

Pair Trading with Arrow Electronics and 76720AAG1

The main advantage of trading using opposite Arrow Electronics and 76720AAG1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arrow Electronics position performs unexpectedly, 76720AAG1 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 76720AAG1 will offset losses from the drop in 76720AAG1's long position.

The idea behind Arrow Electronics and RIO TINTO FIN 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 Stocks Directory module to find actively traded stocks across global markets.