Correlation Between Arrow Electronics and Renesas Electronics

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

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

Diversification Opportunities for Arrow Electronics and Renesas Electronics

0.42

Correlation Coefficient

Arrow Electronics  Renesas Electronics

Very weak diversification

The 3 months correlation between Arrow and Renesas is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Renesas Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renesas Electronics 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 Renesas Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renesas Electronics has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Renesas Electronics go up and down completely randomly.

Pair Corralation between Arrow Electronics and Renesas Electronics

If you would invest  1,297  in Renesas Electronics on September 23, 2024 and sell it today you would lose (32.00) from holding Renesas Electronics or give up 2.47% of portfolio value over 90 days.

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

Arrow Electronics  vs.  Renesas Electronics

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 nearly stable basic indicators, Arrow Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Renesas Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Arrow Electronics and Renesas Electronics

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

The idea behind Arrow Electronics and Renesas 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.