Correlation Between Arrow Electronics and Addtech

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

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

Diversification Opportunities for Arrow Electronics and Addtech

-0.27

Correlation Coefficient

Arrow Electronics  Addtech

Very good diversification

The 3 months correlation between Arrow and Addtech is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Addtech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addtech and Arrow Electronics 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 Arrow Electronics are associated (or correlated) with Addtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addtech has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Addtech go up and down completely randomly.

Pair Corralation between Arrow Electronics and Addtech

Assuming the 90 days trading horizon Arrow Electronics is expected to under-perform the Addtech. But the stock apears to be less risky and, when comparing its historical volatility, Arrow Electronics is 1.28 times less risky than Addtech. The stock trades about 0.0 of its potential returns per unit of risk. The Addtech is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  26,353  in Addtech on September 28, 2024 and sell it today you would earn a total of  3,747  from holding Addtech or generate 14.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.22%
Values	Daily Returns

Arrow Electronics  vs.  Addtech

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 January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Addtech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Addtech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Addtech is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Arrow Electronics and Addtech

The main advantage of trading using opposite Arrow Electronics and Addtech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arrow Electronics position performs unexpectedly, Addtech 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 Addtech will offset losses from the drop in Addtech's long position.

The idea behind Arrow Electronics and Addtech 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.