Correlation Between Arrow Electronics and Emerson Radio

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

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

Diversification Opportunities for Arrow Electronics and Emerson Radio

0.62

Correlation Coefficient

Arrow Electronics  Emerson Radio

Poor diversification

The 3 months correlation between Arrow and Emerson is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Emerson Radio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Radio 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 Emerson Radio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Radio has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Emerson Radio go up and down completely randomly.

Pair Corralation between Arrow Electronics and Emerson Radio

Considering the 90-day investment horizon Arrow Electronics is expected to generate 0.76 times more return on investment than Emerson Radio. However, Arrow Electronics is 1.31 times less risky than Emerson Radio. It trades about -0.1 of its potential returns per unit of risk. Emerson Radio is currently generating about -0.09 per unit of risk. If you would invest  13,283  in Arrow Electronics on September 28, 2024 and sell it today you would lose (1,780) from holding Arrow Electronics or give up 13.4% of portfolio value over 90 days.

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

Arrow Electronics  vs.  Emerson Radio

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 uncertain performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Emerson Radio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerson Radio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Arrow Electronics and Emerson Radio

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

The idea behind Arrow Electronics and Emerson Radio 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.