Correlation Between Arrow Electronics and Eastern

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

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

Diversification Opportunities for Arrow Electronics and Eastern

0.83

Correlation Coefficient

Arrow Electronics  Eastern

Very poor diversification

The 3 months correlation between Arrow and Eastern is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Eastern Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern 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 Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Eastern go up and down completely randomly.

Pair Corralation between Arrow Electronics and Eastern

Considering the 90-day investment horizon Arrow Electronics is expected to under-perform the Eastern. But the stock apears to be less risky and, when comparing its historical volatility, Arrow Electronics is 1.08 times less risky than Eastern. The stock trades about -0.04 of its potential returns per unit of risk. The Eastern Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,971  in Eastern Co on September 2, 2024 and sell it today you would lose (99.00) from holding Eastern Co or give up 3.33% of portfolio value over 90 days.

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

Arrow Electronics  vs.  Eastern Co

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.

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, Eastern is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Arrow Electronics and Eastern

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

The idea behind Arrow Electronics and Eastern Co 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.