Correlation Between Magnite and Arrow Electronics

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

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

Diversification Opportunities for Magnite and Arrow Electronics

-0.65

Correlation Coefficient

Magnite  Arrow Electronics

Excellent diversification

The 3 months correlation between Magnite and Arrow is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Magnite and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and Magnite 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 Magnite 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 Magnite i.e., Magnite and Arrow Electronics go up and down completely randomly.

Pair Corralation between Magnite and Arrow Electronics

Given the investment horizon of 90 days Magnite is expected to generate 1.08 times less return on investment than Arrow Electronics. In addition to that, Magnite is 2.88 times more volatile than Arrow Electronics. It trades about 0.05 of its total potential returns per unit of risk. Arrow Electronics is currently generating about 0.17 per unit of volatility. If you would invest  11,503  in Arrow Electronics on October 27, 2024 and sell it today you would earn a total of  417.00  from holding Arrow Electronics or generate 3.63% return on investment over 90 days.

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

Magnite  vs.  Arrow Electronics

Magnite

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Magnite are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Magnite demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 Magnite and Arrow Electronics

The main advantage of trading using opposite Magnite and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magnite 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 Magnite 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.