Correlation Between CARPENTER and Arrow Electronics

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

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

Diversification Opportunities for CARPENTER and Arrow Electronics

0.18

Correlation Coefficient

CARPENTER  Arrow Electronics

Average diversification

The 3 months correlation between CARPENTER and Arrow is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding CARPENTER TECHNOLOGY P and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and CARPENTER 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 CARPENTER TECHNOLOGY P 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 CARPENTER i.e., CARPENTER and Arrow Electronics go up and down completely randomly.

Pair Corralation between CARPENTER and Arrow Electronics

Assuming the 90 days trading horizon CARPENTER TECHNOLOGY P is expected to generate 0.24 times more return on investment than Arrow Electronics. However, CARPENTER TECHNOLOGY P is 4.24 times less risky than Arrow Electronics. It trades about 0.01 of its potential returns per unit of risk. Arrow Electronics is currently generating about -0.05 per unit of risk. If you would invest  9,994  in CARPENTER TECHNOLOGY P on August 31, 2024 and sell it today you would earn a total of  16.00  from holding CARPENTER TECHNOLOGY P or generate 0.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

CARPENTER TECHNOLOGY P  vs.  Arrow Electronics

CARPENTER TECHNOLOGY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CARPENTER TECHNOLOGY P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CARPENTER is not utilizing all of its potentials. The latest stock price disturbance, 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 CARPENTER and Arrow Electronics

The main advantage of trading using opposite CARPENTER and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CARPENTER 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 CARPENTER TECHNOLOGY P 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.