Correlation Between EI Du and Arrow Electronics

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

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

Diversification Opportunities for EI Du and Arrow Electronics

-0.36

Correlation Coefficient

EI Du  Arrow Electronics

Very good diversification

The 3 months correlation between CTA-P-A and Arrow is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding EI du Pont and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and EI Du 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 EI du Pont 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 EI Du i.e., EI Du and Arrow Electronics go up and down completely randomly.

Pair Corralation between EI Du and Arrow Electronics

Assuming the 90 days trading horizon EI du Pont is expected to under-perform the Arrow Electronics. In addition to that, EI Du is 1.15 times more volatile than Arrow Electronics. It trades about -0.21 of its total potential returns per unit of risk. Arrow Electronics is currently generating about 0.08 per unit of volatility. If you would invest  11,494  in Arrow Electronics on October 23, 2024 and sell it today you would earn a total of  171.00  from holding Arrow Electronics or generate 1.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	72.22%
Values	Daily Returns

EI du Pont  vs.  Arrow Electronics

EI du Pont

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EI du Pont has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Preferred Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company 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 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.

Pair Trading with EI Du and Arrow Electronics

The main advantage of trading using opposite EI Du and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EI Du 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 EI du Pont 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.