Correlation Between River and Arrow Electronics

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

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

Diversification Opportunities for River and Arrow Electronics

-0.7

Correlation Coefficient

River  Arrow Electronics

Excellent diversification

The 3 months correlation between River and Arrow is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding River and Mercantile and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and River 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 River and Mercantile 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 River i.e., River and Arrow Electronics go up and down completely randomly.

Pair Corralation between River and Arrow Electronics

Assuming the 90 days trading horizon River is expected to generate 1.44 times less return on investment than Arrow Electronics. But when comparing it to its historical volatility, River and Mercantile is 1.48 times less risky than Arrow Electronics. It trades about 0.02 of its potential returns per unit of risk. Arrow Electronics is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  10,746  in Arrow Electronics on October 21, 2024 and sell it today you would earn a total of  866.00  from holding Arrow Electronics or generate 8.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.64%
Values	Daily Returns

River and Mercantile  vs.  Arrow Electronics

River and Mercantile

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in River and Mercantile are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, River is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the 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 River and Arrow Electronics

The main advantage of trading using opposite River and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if River 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 River and Mercantile 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.