Correlation Between Auto Trader and Arrow Electronics

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

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

Diversification Opportunities for Auto Trader and Arrow Electronics

0.9

Correlation Coefficient

Auto Trader  Arrow Electronics

Almost no diversification

The 3 months correlation between Auto and Arrow is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and Auto Trader 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 Auto Trader Group are associated (or correlated) with Arrow Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Electronics has no effect on the direction of Auto Trader i.e., Auto Trader and Arrow Electronics go up and down completely randomly.

Pair Corralation between Auto Trader and Arrow Electronics

Assuming the 90 days trading horizon Auto Trader Group is expected to generate 0.59 times more return on investment than Arrow Electronics. However, Auto Trader Group is 1.69 times less risky than Arrow Electronics. It trades about -0.42 of its potential returns per unit of risk. Arrow Electronics is currently generating about -0.28 per unit of risk. If you would invest  81,140  in Auto Trader Group on October 16, 2024 and sell it today you would lose (4,720) from holding Auto Trader Group or give up 5.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.0%
Values	Daily Returns

Auto Trader Group  vs.  Arrow Electronics

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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 unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Auto Trader and Arrow Electronics

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

The idea behind Auto Trader Group and Arrow Electronics 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .