Correlation Between L3HARRIS and Arrow Electronics

Can any of the company-specific risk be diversified away by investing in both L3HARRIS 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 L3HARRIS and Arrow Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between L3HARRIS TECHNOLOGIES INC and Arrow Electronics, you can compare the effects of market volatilities on L3HARRIS 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 L3HARRIS with a short position of Arrow Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of L3HARRIS and Arrow Electronics.

Diversification Opportunities for L3HARRIS and Arrow Electronics

-0.02

Correlation Coefficient

L3HARRIS  Arrow Electronics

Good diversification

The 3 months correlation between L3HARRIS and Arrow is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding L3HARRIS TECHNOLOGIES INC and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and L3HARRIS 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 L3HARRIS TECHNOLOGIES INC 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 L3HARRIS i.e., L3HARRIS and Arrow Electronics go up and down completely randomly.

Pair Corralation between L3HARRIS and Arrow Electronics

Assuming the 90 days trading horizon L3HARRIS TECHNOLOGIES INC is expected to generate 0.45 times more return on investment than Arrow Electronics. However, L3HARRIS TECHNOLOGIES INC is 2.24 times less risky than Arrow Electronics. It trades about -0.1 of its potential returns per unit of risk. Arrow Electronics is currently generating about -0.08 per unit of risk. If you would invest  9,826  in L3HARRIS TECHNOLOGIES INC on December 28, 2024 and sell it today you would lose (418.00) from holding L3HARRIS TECHNOLOGIES INC or give up 4.25% of portfolio value over 90 days.

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

L3HARRIS TECHNOLOGIES INC  vs.  Arrow Electronics

L3HARRIS TECHNOLOGIES INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days L3HARRIS TECHNOLOGIES INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, L3HARRIS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 L3HARRIS and Arrow Electronics

The main advantage of trading using opposite L3HARRIS and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if L3HARRIS 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 L3HARRIS TECHNOLOGIES INC 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.