Correlation Between HUTCHMED DRC and Arrow Electronics

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

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

Diversification Opportunities for HUTCHMED DRC and Arrow Electronics

0.54

Correlation Coefficient

HUTCHMED DRC  Arrow Electronics

Very weak diversification

The 3 months correlation between HUTCHMED and Arrow is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding HUTCHMED DRC and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and HUTCHMED DRC 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 HUTCHMED DRC 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 HUTCHMED DRC i.e., HUTCHMED DRC and Arrow Electronics go up and down completely randomly.

Pair Corralation between HUTCHMED DRC and Arrow Electronics

Considering the 90-day investment horizon HUTCHMED DRC is expected to generate 1.62 times more return on investment than Arrow Electronics. However, HUTCHMED DRC is 1.62 times more volatile than Arrow Electronics. It trades about 0.02 of its potential returns per unit of risk. Arrow Electronics is currently generating about -0.03 per unit of risk. If you would invest  1,742  in HUTCHMED DRC on September 4, 2024 and sell it today you would lose (5.00) from holding HUTCHMED DRC or give up 0.29% of portfolio value over 90 days.

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

HUTCHMED DRC  vs.  Arrow Electronics

HUTCHMED DRC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HUTCHMED DRC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, HUTCHMED DRC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the 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 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.

Pair Trading with HUTCHMED DRC and Arrow Electronics

The main advantage of trading using opposite HUTCHMED DRC and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HUTCHMED DRC 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 HUTCHMED DRC 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.