Correlation Between Small Cap and Arrow Electronics

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

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

Diversification Opportunities for Small Cap and Arrow Electronics

-0.5

Correlation Coefficient

Small Cap  Arrow Electronics

Very good diversification

The 3 months correlation between Small and Arrow is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and Small Cap 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 Small Cap Premium 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 Small Cap i.e., Small Cap and Arrow Electronics go up and down completely randomly.

Pair Corralation between Small Cap and Arrow Electronics

Considering the 90-day investment horizon Small Cap Premium is expected to generate 0.3 times more return on investment than Arrow Electronics. However, Small Cap Premium is 3.32 times less risky than Arrow Electronics. It trades about 0.05 of its potential returns per unit of risk. Arrow Electronics is currently generating about -0.1 per unit of risk. If you would invest  2,424  in Small Cap Premium on December 18, 2024 and sell it today you would earn a total of  30.00  from holding Small Cap Premium or generate 1.24% return on investment over 90 days.

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

Small Cap Premium  vs.  Arrow Electronics

Small Cap Premium

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Arrow Electronics

Risk-Adjusted Performance

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 Small Cap and Arrow Electronics

The main advantage of trading using opposite Small Cap and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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 Small Cap Premium 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.