Correlation Between Arrow Electronics and Designer Brands

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

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

Diversification Opportunities for Arrow Electronics and Designer Brands

0.71

Correlation Coefficient

Arrow Electronics  Designer Brands

Poor diversification

The 3 months correlation between Arrow and Designer is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Designer Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Designer Brands 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 Designer Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Designer Brands has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Designer Brands go up and down completely randomly.

Pair Corralation between Arrow Electronics and Designer Brands

Considering the 90-day investment horizon Arrow Electronics is expected to under-perform the Designer Brands. But the stock apears to be less risky and, when comparing its historical volatility, Arrow Electronics is 2.1 times less risky than Designer Brands. The stock trades about -0.01 of its potential returns per unit of risk. The Designer Brands is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  512.00  in Designer Brands on September 12, 2024 and sell it today you would earn a total of  89.00  from holding Designer Brands or generate 17.38% return on investment over 90 days.

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

Arrow Electronics  vs.  Designer Brands

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.

Designer Brands

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Designer Brands are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal fundamental drivers, Designer Brands demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arrow Electronics and Designer Brands

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

The idea behind Arrow Electronics and Designer Brands 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.