Correlation Between Ramsay Health and Arrow Electronics

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

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

Diversification Opportunities for Ramsay Health and Arrow Electronics

0.69

Correlation Coefficient

Ramsay Health  Arrow Electronics

Poor diversification

The 3 months correlation between Ramsay and Arrow is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ramsay Health Care and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and Ramsay Health 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 Ramsay Health Care 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 Ramsay Health i.e., Ramsay Health and Arrow Electronics go up and down completely randomly.

Pair Corralation between Ramsay Health and Arrow Electronics

Assuming the 90 days horizon Ramsay Health Care is expected to under-perform the Arrow Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Ramsay Health Care is 1.05 times less risky than Arrow Electronics. The stock trades about -0.19 of its potential returns per unit of risk. The Arrow Electronics is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  10,700  in Arrow Electronics on October 6, 2024 and sell it today you would earn a total of  200.00  from holding Arrow Electronics or generate 1.87% return on investment over 90 days.

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

Ramsay Health Care  vs.  Arrow Electronics

Ramsay Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ramsay Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ramsay Health and Arrow Electronics

The main advantage of trading using opposite Ramsay Health and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ramsay Health 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 Ramsay Health Care 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.